Post by Juusela on Mar 13, 2009 8:38:12 GMT 4
Finland: Amendments to dividend withholding taxation
Janne Juusela
As a result of the recent ECJ case law (C-170/05, Denkavit and C-379/05, Amurta) the Finnish government issued a bill (HE 113/2008) on November 12 2008 amending the act on the taxation of non-residents' income (627/1978). According to the bill, taxation of Finnish source dividends paid to non-residents were to be amended to correspond to the taxation of dividends paid to residents to conform to EC Law. The parliament passed the bill on December 5 2008 and the changes entered into force from January 1 2009.
Intercompany dividends are in general tax exempt in Finland. Thus, the new provisions stipulate that no tax should be withheld on dividends paid to non-resident shareholders in case the dividends from the same source to a comparable Finnish entity would be tax exempt in Finland and the Finnish withholding tax cannot be credited in the residence country of the entity receiving the dividend.
In practice the amendment means that dividends from Finnish non-listed companies will be tax exempt in Finland without any minimum participation requirement, if the same dividends are tax exempt to the entity receiving the dividends in its residence country.
In the following situations, however, a withholding tax of 19.5% is levied on the intercompany dividend:
* dividends from companies classified as investment assets received by a company owning less than 10%.
* dividends from listed companies received by a non-listed company owning less than 10%.
Taxation of non-resident individuals was amended by introducing a possibility to opt in for taxation by assessment (instead of a flat rate withholding tax). Taxation by assessment enables the receipt of tax exempt dividends from non-listed companies under the same rules as Finnish resident private individuals.
The new provisions apply to dividends paid on or after January 1 2009 to entities and individuals resident in the EEA member countries (with the exception of Liechtenstein).
However, in case an unjustified withholding tax on non-residents' dividends has been levied during the past five fiscal years, it is possible to claim for a retroactive refund.
Amendments to CFC act
The amendments to the Finnish CFC legislation (act on the taxation of shareholders in controlled foreign companies, 1217/1994) entered into force on January 1 2009. The amendments mainly aim to adjust the CFC act to the requirements set in the Cadbury Schweppes ruling by the ECJ. The changes concern the definition of a CFC entity, determination of taxable CFC income and deduction of losses of a CFC entity.
The CFC act may only be applied to shareholders holding an interest of at least 25% in the CFC entity. Thus, the minimum holding requirement was raised from the previous 10% to 25%.
According to the new CFC act the law does not apply provided the following conditions are met:
* the entity is resident in a member state in the EEA or in a tax treaty partner state, and
* on the basis of objective factors (such as premises, employees and equipment) ascertainable by third parties, the controlled entity is actually established in the host state and carries on genuine economic activities there.
Exceptions to the above concern entities established in tax treaty countries that are listed in the black list to be provided by the ministry of finance, or which do not exchange appropriate information with Finnish tax authorities. The black list will cover countries in which the actual level of taxation is less than three-quarters of the corresponding actual corporate tax in Finland (thus lower than 19.5%), which are the following: the Arab Emirates, Barbados, Bosnia-Herzegovina, Georgia, Macedonia, Malaysia, Montenegro, Serbia, Singapore, Switzerland and Uzbekistan. The CFC act may also be applied to companies benefiting from a special tax relief, even though located within a tax treaty country.
Under new law a foreign permanent establishment in a low tax jurisdiction is viewed comparable to a foreign legal entity if the permanent establishment is located in a different country than the foreign company to which it belongs and if its income is not taxed in the country of the foreign company.
Janne Juusela (janne.juusela@borenius.com)
Janne Juusela
As a result of the recent ECJ case law (C-170/05, Denkavit and C-379/05, Amurta) the Finnish government issued a bill (HE 113/2008) on November 12 2008 amending the act on the taxation of non-residents' income (627/1978). According to the bill, taxation of Finnish source dividends paid to non-residents were to be amended to correspond to the taxation of dividends paid to residents to conform to EC Law. The parliament passed the bill on December 5 2008 and the changes entered into force from January 1 2009.
Intercompany dividends are in general tax exempt in Finland. Thus, the new provisions stipulate that no tax should be withheld on dividends paid to non-resident shareholders in case the dividends from the same source to a comparable Finnish entity would be tax exempt in Finland and the Finnish withholding tax cannot be credited in the residence country of the entity receiving the dividend.
In practice the amendment means that dividends from Finnish non-listed companies will be tax exempt in Finland without any minimum participation requirement, if the same dividends are tax exempt to the entity receiving the dividends in its residence country.
In the following situations, however, a withholding tax of 19.5% is levied on the intercompany dividend:
* dividends from companies classified as investment assets received by a company owning less than 10%.
* dividends from listed companies received by a non-listed company owning less than 10%.
Taxation of non-resident individuals was amended by introducing a possibility to opt in for taxation by assessment (instead of a flat rate withholding tax). Taxation by assessment enables the receipt of tax exempt dividends from non-listed companies under the same rules as Finnish resident private individuals.
The new provisions apply to dividends paid on or after January 1 2009 to entities and individuals resident in the EEA member countries (with the exception of Liechtenstein).
However, in case an unjustified withholding tax on non-residents' dividends has been levied during the past five fiscal years, it is possible to claim for a retroactive refund.
Amendments to CFC act
The amendments to the Finnish CFC legislation (act on the taxation of shareholders in controlled foreign companies, 1217/1994) entered into force on January 1 2009. The amendments mainly aim to adjust the CFC act to the requirements set in the Cadbury Schweppes ruling by the ECJ. The changes concern the definition of a CFC entity, determination of taxable CFC income and deduction of losses of a CFC entity.
The CFC act may only be applied to shareholders holding an interest of at least 25% in the CFC entity. Thus, the minimum holding requirement was raised from the previous 10% to 25%.
According to the new CFC act the law does not apply provided the following conditions are met:
* the entity is resident in a member state in the EEA or in a tax treaty partner state, and
* on the basis of objective factors (such as premises, employees and equipment) ascertainable by third parties, the controlled entity is actually established in the host state and carries on genuine economic activities there.
Exceptions to the above concern entities established in tax treaty countries that are listed in the black list to be provided by the ministry of finance, or which do not exchange appropriate information with Finnish tax authorities. The black list will cover countries in which the actual level of taxation is less than three-quarters of the corresponding actual corporate tax in Finland (thus lower than 19.5%), which are the following: the Arab Emirates, Barbados, Bosnia-Herzegovina, Georgia, Macedonia, Malaysia, Montenegro, Serbia, Singapore, Switzerland and Uzbekistan. The CFC act may also be applied to companies benefiting from a special tax relief, even though located within a tax treaty country.
Under new law a foreign permanent establishment in a low tax jurisdiction is viewed comparable to a foreign legal entity if the permanent establishment is located in a different country than the foreign company to which it belongs and if its income is not taxed in the country of the foreign company.
Janne Juusela (janne.juusela@borenius.com)