Finland: Supreme Administrative Court Issues Rulings Concerning Taxation of Cross-Border Dividends

On 12 March 2010 the Finnish Supreme Administrative Court issued two rulings concerning taxation of cross-border dividends. Based on the rulings both Finnish investors and foreign investment funds may be entitled to tax refunds.

In the first ruling (KHO:2010:15), the Supreme Administrative Court stated that the Finnish entity, being a fully-owned subsidiary of a Luxembourg resident SICAV, was not required to withhold any tax on dividends paid to the SICAV. The Supreme Administrative Court had referred the question to the European Court of Justice and the ECJ decided the questions of law on 18 June 2009. In its judgment C-303/07 (Aberdeen Property Fininvest Alpha Oy) ECJ stated that the Finnish legislation conflicted with the principle of free establishment. The Supreme Administrative Court gave its decision in accordance with the preliminary ruling of the ECJ.

The latter case (KHO 12.3.2010/470) concerned the taxation of profit distribution from a Luxembourg resident SICAV to a Finnish limited liability company. The Supreme Administrative Court stated that the profit distribution shall be considered as dividend in the Finnish taxation despite the fact that the legal nature of a SICAV differs to certain extent from a Finnish limited liability company.

After the decisions it seems clear that a Luxembourg resident SICAV can be considered as comparable to a Finnish resident limited liability company with regard to dividend taxation. Since the dividends received by a Finnish legal entity are in most situations tax-exempt, the same principle may be applied even when the distributor of dividend is a Luxembourg resident SICAV.

Although the decisions referred only to Luxembourg resident SICAV, the principles described in the caption and the preamble of the decisions could be extended to other similar EU/EEA-resident company forms. Provided that conditions described in the decisions are fulfilled any profit distributed from a SICAV-like entity to a Finnish shareholder should be considered as dividend in the Finnish taxation. In case the profit distribution has been fully taxed in Finland (e.g. as profit share from investment fund), the shareholder may appeal the tax decisions and file a written claim for adjustment. Finnish taxpayer may file a claim within the five calendar years following the assessment year.

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