Finland: Budget Bill for 2012 - update

Further to our our Announcement A11195, dated 20 December 2011, regarding the amendments to the tax legislation in Finland effective

1 January 2012

the Finnish Tax Authorities have provided some procedural guidelines.

Background

The Finnish Parliament has approved amendments to the Act on the Taxation of Non-Residents’ Income and Capital (11.8.1978/627) and to the Income Tax Act (30.12.1992/1535).

As a consequence, from the above date, the standard rate of withholding tax on dividends will increase from 28% to 30%.

Impact on customers

A reduced rate of withholding tax on dividends may be applicable for the following types of beneficial owner as indicated:

Non-treaty corporations

The Finnish Tax Authorities have provided some requirements for applying the new reduced non-treaty rate at source on dividends paid to foreign corporations.

Foreign beneficial owner corporations can benefit from a reduced non-treaty rate of 24.5% by providing the required information before each dividend payment. Beneficial owner information will have to be provided separately for each payment.

The following details must be disclosed before each dividend payment:

• Name of the beneficial owner corporation;
  
• Address in its country of residence;
  
• The corporation’s Tax Identification Number.

Furthermore, a Certificate of Residence and/or an Extract from the Trade Register may be requested as proof of a beneficial owner corporation’s eligibility for the reduced rate

Note: A foreign legal entity may be regarded as similar to a Finnish incorporated legal entity if it meets the requirements of provision §3, Income Tax Act.

Quick refund (during the year of payment) and standard refund (after the year of payment) reclaim procedures for non-treaty foreign beneficial owner corporations are now in place with our depository and will follow those in place for residents of a DTT country.

Note: If there is uncertainty about the taxation status of a foreign corporation, Clearstream Banking² recommends customers to reclaim taxes directly from the Finnish Tax Authorities after the year of payment so that the authorities can take the final decision as to whether the foreign corporation is comparable with a Finnish corporation and thus entitled to the reduced tax rate.

Corporations domiciled in a European Economic Area (EEA) country

A corporation domiciled in an EEA country can benefit from a tax rate of 18.38% under the following conditions:

• If the tax paid cannot be fully returned in the beneficial owner’s tax domicile; and
  
• If the relevant tax domicile country is governed either by the Mutual Assistance Directive 2. 77/799/ECC or by a treaty on executive assistance and exchange of information between the relevant authorities³; and
  
• If such corporation is comparable to a Finnish corporation that currently enjoys similar taxation at source on dividends in Finland; that is:
  

• The Finnish corporation is publicly listed and the foreign beneficial owner corporation is a non-listed corporation that owns less that 10% of the share capital of the Finnish corporation; or
  
• The shares of the Finnish corporation are part of the investment assets of the foreign corporation and the foreign beneficial owner corporation is not a corporation defined in the Parent-Subsidiary Directive owning at least 10% of the share capital of the Finnish corporation.

Note: The lower tax treaty rates will apply, rather than the EEA provision. All the applicable tax treaties between Finland and the EEA countries currently apply a treaty rate that is lower than 18.38%, except for those with Liechtenstein (where there is no tax treaty and the withholding tax rate is 28%) and Cyprus (where the current tax treaty rate is 28%). As the above benefit is not applicable to Liechtenstein, only Cypriot corporations might benefit from it.

Further information

For further information, please contact the Clearstream Banking Tax Help Desk on:

or Clearstream Banking Customer Service or your Relationship Officer.

1. Subject to special conditions (please refer to EEA corporations eligible for 19.5% in Market Taxation Guide – Finland).
2. Clearstream Banking refers to Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248.
3. This excludes Liechtenstein.