Finland : withholding tax rules on dividends paid to foreign pension funds to conform to EU law

Finland : withholding tax rules on dividends paid to foreign pension funds to conform to EU law

The Finnish Act on Taxation of Nonresident Income (Laki rajoitetusti verovelvollisen tulon verottamisesta) has been amended in respect to withholding taxation of dividends distributed to nonresident pension funds. This amendment brings the withholding tax rules into conformity with EU law. The amendments will enter into force on 1 January 2015 and will be applicable to dividends distributed after the respective date.

Finnish pension funds are in principle subject to Finnish corporate tax. However, the funds are in effect authorized to make a deduction from their taxable income on the basis of amounts reserved in order to meet their obligations regarding future pension liabilities (provision for pension liabilities), which in practice often gives rise to a tax exemption for dividends received by Finnish pension funds.

The amendment may also be deemed to confirm the principles based on which the foreign funds may be entitled to apply for a refund of Finnish withholding tax levied on dividends received by them. The statute of limitations for reclaims of withholding taxes levied on dividends is five years from the beginning of the calendar year following the year of dividend distribution.