Finland: German special investment fund, exempt Finnish dividend withholding tax

Finland: German special investment fund

The Finnish tax administration determined that a German special investment fund was exempt from Finnish withholding tax on dividends paid from sources in Finland.

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The tax administration’s decision (23 September 2016) concludes that the German special investment fund (Spezial-Sondervermögen) was comparable to a Finnish special investment fund, and as such was a tax-exempt entity under section 20 of Finland’s income tax law. 

Summary

Section 20 of Income Tax Act in Finland provides that investment funds are tax-exempt entities. The section also covers “special investment funds” which are regarded as alternative investment funds, meaning that their rules may deviate from the requirements imposed by the EU UCITS Directive and certain provisions of the Investment Fund Act.

The applicant for a withholding tax refund was an open-end, contractual-based German special investment fund. It was established under the relevant German laws and supervised by the Germany’s federal financial supervisory authority (BaFin). Its assets were managed by a separate investment management company, and the fund was accessible only to non-natural persons. For tax purposes, the total amount of investors was limited to 100, and under a tripartite agreement, mutual consent of the parties would be required for additional investors to join the fund. The fund was tax-exempt in Germany.

In Finland, a 15% tax at source was withheld from dividends paid to the German special investment fund. Due to the tax-exempt status, the fund could not seek relief from its tax treatment in Germany. The fund submitted an application for refund of withholding tax from the Finnish tax administration, claiming that the fund was comparable to a Finnish special investment fund pursuant to Article 63 of the EU Treaty (TFEU).

With reference to provisions of Finland’s income tax law and Article 63 TFEU, the tax administration ruled that the German special investment fund was comparable to a Finnish investment fund. 

KPMG observation

The tax administration’s decision illustrates again the influence of case law from the Court of Justice for the European Union as well as Finnish domestic case law regarding comparability analysis under Article 63 TFEU. As has been observed, the entities being considered merely have to be comparable, not identical, entities. The number of investors or indirect contractual restrictions on access to the fund do not affect a comparability analysis negatively, per se. It appears that given the tax administration’s findings, non-UCITS funds whether established within the EU or third countries apparently have good opportunities for obtaining withholding tax refunds from Finland.

 

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

Antti Leppänen | +358 (0)20 760 3247 | antti.leppanen@kpmg.fi

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

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

Aki Kokko | +358 (0)20 760 3000 | aki.kokko@kpmg.fi

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