Entitlement Compensation Rules - Finland

02.02.2015

Bonds, interest payment/redemption - Infinity

Market compensation basis:Settlement Date
Automatic Compensation Managed by Local CSD:Yes, when requested by both counterparties in their settlement instructions.
Restriction on custody events/transaction types:No restriction
Additional information:
Service offered by CBL:CBL will opt out from the EFI market claim processing and will not request automatic compensation by EFI. Customers must ensure that their counterparties indicate the same opt out in their settlement instructions against CBL account in Infinity; otherwise the instructions will not match in Infinity.

Equities, dividend payment - OM system

Market compensation basis:Trade Date
Automatic Compensation Managed by Local CSD:No. Participants in the OM system are responsible for managing compensations in accordance with market practice.
Restriction on custody events/transaction types:No restriction
Additional information:
If Trade Date is before Ex-Date and if the trade is settled on/before Record Date, the buyer is entitled to the corporate action or the dividend.
If Trade Date is before Ex-Date but the trade is settled after Record Date, the delivering party is responsible for transferring securities together with the entitlements and the amount of any cash compensation that may arise in accordance with market practice.
The Finnish Tax Authorities currently consider cash compensations as a special type of "other income" whereby, from an income tax perspective, compensation received by Finnish residents is taxed in the same way as dividend income. From a withholding tax perspective, cash compensations paid to non-Finnish residents are, however, considered as standard "other income".
As a rule, the delivering party must pay cash compensation that corresponds to 100% of the gross dividend regardless of the domicile or the tax status of the recipient. The one exception to the 100% compensation rule is that, when a given double taxation treaty stipulates that "other income" is subject to a higher Finnish withholding tax rate than dividends, the delivering party must pay more than 100% compensation so that the net result of the compensation is the same as if the non-Finnish recipient of the cash compensation had received the original dividend payment.
In such cases, the following formula applies: D*x = C*y
(where D=gross dividend, x=dividend withholding tax rate, C=cash compensation, y=withholding tax rate applied to "other income" payments).
In practice, most tax treaties signed by Finland prevent the levying of withholding tax on "other income" in Finland. Most cash compensations paid to non-Finnish residents must therefore conform to the 100% compensation rule.
Service offered by CBL:Adjustments (trade date after ex-date but settlement after record date) for trades with settlement cycle of T+2 and above are initiated automatically by CBL's agent and performed by CBL based on information received from the agent. However, CBL and its agent will not proactively initiate adjustment for trades with a non-standard settlement cycle of T+1. Adjustments on such trades must be agreed directly between the counterparties. CBL will assist customers in conjunction with the agent when needed.

Equities, corporate action - OM system

Market compensation basis:Trade Date
Automatic Compensation Managed by Local CSD:Participants in the OM system are responsible for managing compensations in accordance with market practice.
Restriction on custody events/transaction types:No restriction
Additional information:
If Trade Date is before the Ex-Date, and if the trade is settled on or before Record Date, the buyer is entitled to the corporate action or the dividend.
If Trade Date is before the Ex-Date but the trade is settled after Record Date, the delivering party is responsible for transferring securities together with the entitlements and the amount of any cash compensation that may arise in accordance with market practice.
Service offered by CBL:Adjustments (trade date after ex-date but settlement after record date) for trades with settlement cycle of T+2 and above are initiated automatically by CBL's agent and performed by CBL based on information received from the agent. However, CBL and its agent will not proactively initiate adjustment for trades with a non-standard settlement cycle of T+1. Adjustments on such trades must be agreed directly between the counterparties. CBL will assist customers in conjunction with the agent when needed.