Entitlement Compensation Rules - Finland

18.07.2019

Securities eligible in Euroclear Finland

Securities denominated in nominal

Automatic Compensation Managed by Local CSDYes
Detection basis:
  • Record date;
  • Intended settlement date.
Applicable trade status:
  • Matched;
  • Settled,
  • Pending.
Detection period:20 business days after Record Date
Restriction on custody events/transaction types:

Market claims will not be generated for:

  • Instructions specifying Opt-out indicator;
  • Cash distributions announced in a currency other than EUR;
  • Buyer to seller (reverse claims).
Service offered by CBL:Adjustment is performed based on information received from the depository.

Securities denominated in units

Automatic Compensation Managed by Local CSD:Yes
Detection basis:
  • Trade date;
  • Intended settlement date;
  • Ex-date;
  • Record date.
Applicable trade status:
  • Matched;
  • Settled;
  • Pending.
Detection period:20 business days after Record Date
Restriction on custody events/transaction types:

Market claims will not be generated for:

  • Instructions specifying Opt-out indicator;
  • Cash distributions announced in a currency other than EUR;
  • Buyer to seller (reverse claims).
Service offered by CBL:Adjustment is performed based on information received from the depository.
Additional Information:

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.