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.