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

27 May 2010

On 12 March 2010 the Finnish Supreme Administrative Court issued two rulings concerning taxation of cross-border dividends in cases related to SICAVs resident in Luxembourg. Based on the rulings both Finnish investors and foreign investment funds may be entitled to tax refunds. Taxand Finland investigates.

In the first ruling 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 which rendered its ruling in the case on 18 June 2009. In the judgment the ECJ stated that the Finnish legislation conflicted with the principle of free establishment. The Supreme Administrative Court gave its decision in accordance with the ECJ preliminary ruling.

The latter case concerned the taxation of profits distributed from a Luxembourg resident SICAV to a Finnish limited liability company. The Supreme Administrative Court stated that the profit distribution shall be considered as a 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.

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 the dividend is a Luxembourg resident SICAV.

Taxand's Take

The Supreme Administrative Court cases directly dealt with SICAVs but the principles described in the caption and the preamble of rulings could be extended also to other similar EU/EEA-resident company forms. Provided the conditions described in the decisions are fulfilled, any profit distributed from a SICAV-like entity to a Finnish shareholder should be considered as a 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 taxpayers may file a claim within the five calendar years following the assessment year.

Your Taxand contact for further queries is:
Janne Juusela
T. +358 9 6153 3431

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