D&I Tax Alert 01/2015

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The Supreme Administrative Court of Finland ("SAC") concluded in its ruling of 13 January 2015 that no dividend withholding tax was to be levied on dividends paid by a Finnish public limited liability company to a Delaware Statutory Trust pursuant to the EU principle of free movement of capital.

In its ruling SAC concluded that the Delaware Statutory Trust, which was a closed-end investment fund listed on the New York Stock Exchange, was to be deemed comparable to a Finnish limited liability company. Since a comparable Finnish company would not have been subject to tax in Finland on such dividend income, no withholding tax was to be levied. Further, SAC stated that the tax treaty concluded between Finland and the US provided for effective exchange of information. SAC confirmed that in such case withholding taxation in Finland could not be justified on the basis of a balanced allocation of taxation rights or fiscal reasons. 

It is of particular interest that this is the first occasion where SAC applied the EU principle of free movement of capital (Article 63(1) of the Treaty on the Functioning of the EU) in relation to a non-EU third country.

The ruling provides effective means for claiming the repayment Finnish dividend withholding taxes for numerous investors from outside the EU. Foreign investment funds and publicly listed companies are encouraged to seek advice regarding their position. Under domestic rules, dividend withholding reclaims must be presented within a period of five years.

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