Finland: Australian public entity exempted from Finnish dividend withholding tax

Finland: Australian public entity exempted

The Finnish tax administration concluded that an Australian public entity was comparable to the Finnish government and public entities as listed in section 20 of Finland's income tax law and as such was exempt from withholding tax on dividends paid from sources in Finland.

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KPMG observation

The findings are in line with previous conclusions concerning Canadian public entities, and together these rulings expand the application of a decision of Finland's Supreme Administrative Court (SAC) which held that a Norwegian government entity was entitled to the same tax exemption allowed for corresponding Finnish government entities. 

Background

In Finland, section 20 of the income tax law provides that several Finnish government and public entities, as listed, are tax-exempt. 

In the current proceedings, the applicant for a refund of withholding tax on dividends received from Finland was an Australian public entity that had been established by virtue of a special act. The applicant was wholly owned by the government of Australia and its legislative purpose was to make provision for unfunded superannuation liabilities that will become payable in the future. The applicant was exempt from Australian income tax under Australian law. 

In Finland, a withholding tax of 15% based on the Finland-Australia income tax treaty had been applied on dividends and the applicant filed a claim for refund of the withholding tax on basis of Article 63 of the EU treaty (TFEU). Also, in effect were rules for the exchange of information between Finland and Australia under the income tax treaty.

Tax administration's conclusion

With reference to Article 63 TFEU, the Finnish tax administration concluded that the Australian public entity was comparable to the Finnish government and public entities listed in section 20, specifically with the social insurance institution and the state pension fund in Finland. 

KPMG observation

Tax professionals in Finland note that the findings of the tax administration are clearly influenced by the SAC’s decision in which the court highlighted that comparable entities do not need to be identical, but rather only need to have a similar purpose and function. Accordingly, the differences among government entities are mainly formal and immaterial, and do not justify discriminatory taxation.

As a result, third country public entities that perform similar tasks, in accordance with similar purpose, to those entities listed in Finland's income tax law would be entitled to dividend withholding tax refunds in Finland. Consequently, the position of entities based in other countries and seeking refunds of withholding tax is viewed as generally having been strengthened.

 

For more information contact a tax professional with the KPMG member firm in Finland:

Jussi Järvinen | +358 (0)20 760 3077 | jussi.jarvinen@kpmg.fi

Kristiina Äimä | +358 (0)20 760 3698 | kristiina.aima@kpmg.fi

Suvi Lamminsivu | +358 (0)20 760 3151 | suvi.lamminsivu@kpmg.fi

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