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Finland | Cross-Border Dividends Involving Luxembourg Sicavs

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The Supreme Administrative Court has recently in its decision (KHO:2010:15) upheld the preliminary ruling of the European Court of Justice C-303/07 (Aberdeen Property Finninvest Alpha Oy), in which the ECJ considered that Finnish withholding taxes levied on dividends paid by a Finnish limited liability company to its Luxembourg SICAV parent company constituted a restriction of freedom of establishment and that such withholding taxes thus should be abolished in circumstances where similar dividends paid to a Finnish parent company were exempt from taxation.

Indeed, Finland has already as of 1 January 2009 changed its tax legislation to such effect that no withholding tax is levied in Finland in circumstances where the dividends would have been exempt from taxation if the EU/EEA recipient were resident in Finland and the recipient would not be able to fully off-set the applicable withholding tax in its state of residence.

In a subsequent case, the Supreme Administrative Court rendered a decision (KHO 12.3.2010/470), according to which profit distributions paid out of a Luxembourgian SICAV shall in turn qualify as dividend for Finnish tax purposes, although there, as such, is no type of company under Finnish company law with a legal form similar to a Luxembourg SICAV. In previous taxation practice, profit distributions from a Luxembourg SICAV have been taxed as profit shares from investment funds.

Based on the decisions, Luxembourg SICAVs may obviously be used as tax efficient tools for structuring a large number of both Finnish inbound and outbound investments. Especially the fact that many Finnish corporate investors (Finnish limited liability companies) can often receive dividends tax exempt provides for interesting tax planning opportunities. Further, to the extent that Finnish or foreign investors have suffered tax losses as a consequence of the previous taxation practice, they should consider filing claims for rectification.

(By NIKLAS THIBBLIN, Waselius & Wist, Helsinki)

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