Insight

Welcome to our platform for insight into all the latest in law and business. We hope to inspire and share big ideas that make the difference driving your business forward.

insight
Recent Dividend Withholding Tax Developments for Foreign Investors
30 Jun 2015 Foreign investors are encouraged to verify their structure and position in relation to protective claims. The withholding tax treatment of dividends paid to foreign investors is under constant development. A Maltese SICAV was not granted a withholding tax exemption in a recent advance ruling by the Central Tax Board. The Central Tax Board rendered on 30 April 2015 an advance ruling regarding the withholding tax treatment of dividends paid to a Maltese investment fund (ruling 13/2015). The case related to a Maltese SICAV, which contemplated an investment into the shares of publicly listed Finnish companies. The Maltese SICAV had the legal form of a corporation with a variable capital. Unlike Finnish investment funds, the Maltese SICAV had a legal personality. The Maltese SICAV had a number of sub-funds represented by various different classes of shares. The Maltese SICAV was not publicly listed and it was not covered by the UCITS IV Directive (2009/65/ EC). Dividends paid by a publicly listed Finnish company to a Maltese investor can be subject to withholding tax in Finland under domestic rules, if the Maltese investor is deemed comparable to a Finnish private limited liability company, and not e.g. to a Finnish investment fund. The Central Tax Board stated in its ruling that the Maltese SICAV was closest comparable to a Finnish private limited liability company engaged in investment activities, the levy of a dividend withholding tax was not deemed an infringement of the principle of the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union (“TFEU”), as in a comparable domestic situation, the dividend would have been fully taxable for a domestic investor. The advance ruling has been appealed and it is not legally binding. It may be argued that the conclusions of the Central Tax Board may not be fully consistent with the principles adopted by the European Court of Justice in its case law, e.g. Aberdeen Property Fininvest Alpha Oy case (C 303/07). Following the adoptation of dividend taxation principles that meet the fundamental freedoms under the TFEU, Finnish companies have been attractive targets for foreign funds, and Finland has also been a suitable platform for investing into certain funds in other EU countries. In many cases, Finland has been cautious in not infringing the principle of free movement of capital and, accordingly, provided withholding tax exemptions on dividends paid to foreign investment funds, including also third country funds. On the other hand, dividends received from e.g. Luxembourg SICAV funds have qualified under the Finnish participation exemption on dividend income. The advance ruling demonstrates the importance of the comparability analysis in relation to also EU domiciled funds and the fact that the Finnish entity classification rules are not well developed. Foreign and domestic investment funds are encouraged to analyse their current and past dividend taxation positions and consider filing protective claims.
insight
Catching Up with Kati Levoranta of Rovio
30 Jun 2015 Before joining Rovio Entertainment Ltd. as their Chief Legal Officer in 2012, Kati has worked in-house at Valio, Pöyry, Nokia and Nokia Siemens Networks. However, she started her legal career at Dittmar & Indrenius in 1996 after being trained at the bench at Tampere District Court and graduating from the University of Turku in 1995. Q: What made you first want to go in-house? I didn’t have any prefixed long-term plans regarding my career. The only thing I was sure of was that I definitely wanted to do post-graduate studies abroad. After my LL.M year at Columbia Law School, I joined Valio as their legal counsel.The first thing that inspired me in being an in-house lawyer was the close co-operation with business people, the feeling of ownership of projects - the satisfaction of achieving business goals, together as a team. The other thing I loved was melting into the heterogeneous group of professionals with varying backgrounds. It’s very different from working with attorneys only, I can tell you! The third thing I enjoyed from the very beginning was the speed at which things have to be done in order to keep the wheels turning. As an in-house lawyer you do your best mitigating risks and then you just go ahead. That suits me very well.The six years at Valio were an amazing learning experience. The time was formative in a sense that I learned to appreciate some of my personality traits as character assets in the business world, which was an important eye-opener from career perspective. Q: What’s the best thing about working at Rovio? For me, that every day is different. There is no such thing as a typical day at Rovio. Instead of routines, there’s always a sense of inspiration and excitement behind the corner. One day we may be negotiating with Hollywood stars and the next day we’re hosting high level governmental officials from the Republic of China in our offices in Espoo. There’s an immense spectrum of things that can land on my desk and I love it. And it doesn’t hurt that I’m a huge fan of our products! There’s always a sense of inspiration and excitement behind the corner. Q: What legal issues or challenges have you got coming up on the horizon? Regulatory issues in the gaming industry are constantly on our radar. We constantly need to be thinking ahead and to predict the direction of the industry regulation in order to be able to turn the tables, if necessary, and prevent any slowing of our own business. Q: In your free time, what are you reading at the moment? I have just been reading a truly fantastic book “Anatomy of winning” (Voittamisen Anatomia) by the famous sports surgeon Dr. Aki Hintsa, best known for his work with Olympic athletes and Formula 1 pilots. According to Hintsa’s philosophy, one needs a foundation of holistic wellbeing for being able to deliver optimal performance. Hintsa’s book strongly resonates with my own beliefs that are based on my personal experience. As a former tennis player, different kinds of sports have always been the most natural way of supporting my wellness and, subsequently, my ability to give my very best professionally. Last year, I started training triathlon. I’m going to my first triathlon competitions in Finland this summer and to Mallorca in early fall. While training, there have been moments when I’ve felt completely beaten physically but, at the same time, mentally crystal-clear and joyful, almost invinsible. I recommend reading Hintsa’s book and acting accordingly. Maintaining good physical condition through doing sports regularly and resting well helps dealing with stress and gives boost when it’s needed.
insight
Kari Lautjärvi, What Is the Hot Topic in the Finnish Finance Markets?
30 Jun 2015 Partner Kari Lautjärvi co-heads the Corporate Advisory, Compliance & CSR team at Dittmar & Indrenius. In addition to his advisory and finance work, he is an active spokesperson for pro bono activities in the Finnish legal market. He also recently defended his doctoral thesis on Mezzanine Finance Instruments. Q: Kari, you have taken an active interest in pro bono work, tell us more about that.My interest for pro bono work woke up in the 1980s when I was studying at Harvard Law School. At that time pro bono work was already an essential part of the activities in American Bar Association and of major law firms in the United States. Later on, when I became the President of the Finnish Bar Association, I advocated the implementation of pro bono activities in the Association and in Finnish law firms. A great deal of pro bono activities support the maintaining and developing the rule of law. Pro bono work fits very well in the business of law firms, since one important aspect of legal practice is to maintain and develop the rule of law, and a great deal of pro bono activities support this purpose. A good example is Crisis Management Initiative, one of Dittmar & Indrenius’ key pro bono clients, whose purpose is to prevent and resolve conflicts and support sustainable peace around the world. Pro bono activities are an essential part of Dittmar & Indrenius ́ corporate culture and an important element in the professional and personal development of our lawyers. Q: You defended your doctoral thesis on Mezzanine Finance Instruments at the University of Helsinki this spring. Tell us about the theme of your thesis. The key theme is the corporate management’s responsibilities towards the creditors in context of the Finnish company law. As to the financial instruments themselves, my focus is on their factual nature and content rather than their pure legal form. Albeit typically structured as debt instruments, mezzanine instruments are often more akin to equity by virtue of their characteristics. The implementation of the IFRS in Finland has emphasised substance-based evaluation in defining the difference between equity and debt in company accounts. However, from the perspectives of the Finnish company, accounting and tax law, the legal character and status of equity and debt instruments may differ or conflict with one another. Mezzanine finance instruments are a form of hybrid capital. Companies issue mezzanine instruments primarily for the purposes of achieving tax benefits, improving the company ́s solvency and credit ratios as well as facilitating the company ́s capital funding or decreasing capital expenditure. Mezzanine instruments may contribute to the improvement of risk management for companies and their investors as well as increased profits for the investors. They also provide an alternative financing method for companies, their shareholders and other investors by mitigating their conflicting interests. In my thesis I analyse various types of mezzanine instruments and the structure of the applicable Finnish legal rules. The thesis is published as a book “Välipääomarahoitusinstrumentit” by Talentum. Q: What are the current hot topics in the Finnish finance markets? It is a general development in the financial markets in Finland that corporate bonds, mezzanine instruments and other market-based financial instruments are replacing traditional bank financing. A good example of this is the recent acquisition of the Finnish forestry company Kotkamills from OpenGate Capital where we advised the acquirer, MB Funds. An interesting element of the acquisition was the combination of equity, mezzanine and high-yield bond financing into a single financing package. Although the use of high yield bonds governed by Finnish law as an alternative to bank financing has been relatively rare, case Kotkamills showed that diversity of funding sources and flexibility in creating financing solutions will lead to more efficient outcomes and can bring substantial benefits in capital structure optimising.

Dittmar & Indrenius