On 30 March 2011, the Central Tax Board gave a preliminary ruling (KVL 21/2011) stating that dividends paid from Finland to a Norwegian investment fund were not subject to tax at source, because the corresponding income is tax exempt for Finnish investment funds. The preliminary ruling of the Central Tax Board expands the tax exempt status of dividends from what is provided in the Finnish Tax Administration's instructions. The core of the ruling is that UCITS funds as defined in the UCITS Directive can be considered comparable to Finnish investment funds. This decision significantly improves the opportunities for foreign investment funds to reclaim paid withholding tax.
In the ruling, the Central Tax Board found that there was no objective difference between the Norwegian investment fund and Finnish investment funds, given that the Norwegian fund was a UCITS fund in the meaning of the UCITS Directive. The fund is a separate legal person in Norway with unlimited tax liability for its income. The Central Tax Board also held that the differing treatment of investment funds could not be justified by the need to secure the coherence of the tax system or by the balanced allocation of the power to impose taxes between Member States. Under the provisions concerning the free movement of capital, the Norwegian investment fund had to be treated in the same way as Finnish investment funds. Dividends and profits on sale received by Finnish investment funds are tax exempt. Under the Central Tax Board's ruling, the Norwegian investment fund was not liable to tax for dividends received from a Finnish listed company. The dividends received by the investment fund were, thus, exempt from Finnish withholding tax.
In June 2010, the Finnish Tax Administration issued an instruction concerning the withholding taxation of persons with limited tax liability. The instruction issued was based on the Aberdeen case (KHO 2010:15), in which the Supreme Administrative Court, on the basis of a preliminary ruling of the Court of Justice of the European Union, found that dividends paid to a variable-capital SICAV company based in Luxembourg were not subject to withholding tax in Finland. At the time, the Finnish Tax Administration's instruction did not consider the Supreme Administrative Court's decision to have any effect on the withholding tax of dividends paid to foreign investment funds. According to the Finnish Tax Administration's instruction, the tax at source of dividends should always be decided on a case-by-case basis, when the company involved is anything other than the kind of Luxembourg SICAV company involved in case KHO 2010:15.
The Central Tax Board's decision has not been appealed to the Supreme Administrative Court, and has, thus, become final.
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