The Administrative Court of Helsinki has recently issued
decisions which grant refund of Finnish withholding tax on
dividends to Swedish tax-exempt investment funds on the basis of EU
arguments. The State Representatives have decided not the appeal
the decisions and therefore the decisions have gained legal force.
Attorneys at law Borenius represented the Swedish investment funds
in the process.
Finnish investment funds qualify as separately taxable corporate
entities for Finnish tax purposes. Based on a special provision of
the Income Tax Act, investment funds are fully tax-exempt entities.
In principle, non-resident investment funds are nevertheless
subject to withholding tax on Finnish-source dividends. Provided
that the non-resident fund is tax-exempt in the country of
residence, the Finnish withholding tax remains as a final tax
burden. Therefore the difference in tax treatment compared to a
Finnish investment fund investing in the same companies is
In its rulings the Administrative Court stated that the difference
in tax treatment was not justified and therefore the Swedish
investment funds should have been entitled to tax refunds. The
Court justified its rulings with the established legal practice of
the European Court of Justice concerning dividend withholding
taxation within EU. In addition the Court ruled the State to
compensate legal costs to the Swedish investment funds.
The rulings strengthen the general consent on interpretation of EU
law on withholding taxes. In addition the rulings could encourage
other foreign investment and pension funds to claim for tax refunds
from Finland. Foreign investment funds should claim for refunds for
dividend withholding taxes within five calendar years following the
year during which the withholding tax was levied. Currently,
withholding taxes levied in 2007-2012 are subject to reclaims.
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