The present newsletter provides an update on a recent positive development of the jurisprudence in Finland and more specifically concerning the entitlement of non-UCITS funds to benefit from a refund of taxes based on EU law.
The claimant was an open-end, non-quoted and non-UCITS investment fund (a Spezial-Sondervermögen, as established under German law), which was a separate tax subject but had no separate legal personality in Germany (Fund). It was managed by a management company, and its assets were held by a custodian entity. Pursuant to the applicable German fund regulations, the number of unitholders in the fund was limited.
The Administrative Court ruling
When assessing whether the Fund was subject to a discriminatory tax treatment, the Court concluded that the Fund was objectively comparable to a Finnish real estate investment fund (‘special investment fund’). As real estate income accrued to such a Finnish fund would be tax-exempt under Finnish tax legislation, levying a tax from the Fund on its Finnish-sourced real estate investment income was considered discriminatory and against the free movement of capital as well as the freedom of establishment as provided for under articles 63 and 49 of the Treaty on the Functioning of the European Union (TFEU). The Court further referred to CJEU case law and pointed out that the income received by the Fund was tax-exempt in Germany, hence the Finnish tax could not be credited in Germany.
The decision clarifies the Finnish tax position with regard to German real estate investment funds and other foreign non-UCITS investment funds, although comparability to Finnish tax-exempt funds has to be analyzed on a case by case basis. Within the 5-year reclaim period the funds can claim for refund of taxes paid already in 2010. Furthermore, foreign real estate investment funds can request for waiving the on-going income tax prepayments on real estate income or apply for tax exemption for new investments.
KPMG Finland represented the claimant before the Tax Administration and the Administrative Court.
The decision of the Finnish Court should open the door for opportunities to Luxembourg resident investment real estate funds to reclaim taxes paid on real estate income in Finland. In addition, this may have a positive impact for Luxembourg investment funds that suffered withholding taxes (WHT) on dividend payments in Finland. Until now, WHT reclaims filed by non-quoted and non-UCITS Luxembourg funds have been rejected by the Finnish Tax Authorities. Therefore, the present decision can be seen as a support for EU non-UCITS and non-quoted investment funds to reclaim WHT suffered on Finnish source dividend distributions.
This decision should also constitute an incentive for EU non-UCITS and non-quoted funds to appeal decisions of rejection issued by the Finnish tax authorities regarding initial WHT reclaims filed in the past.
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