Finland - Challenge to tax treatment of non-Finnish pension funds 

The Advocate General’s opinion is not binding on the CJEU. Rather, the role of the Advocates General is to propose to the court, in complete independence, a legal solution to the case. The CJEU judges may now begin their deliberations, with judgment to be given at a later date.

The case is: Commission v. Finland, C-342/10 (19 July 2012)

Summary

Under Finland’s tax law, funded pension plans are treated differently, depending on whether the plan is a resident in Finland—or not.

• A Finnish pension plan’s taxable income is taxed at a rate of 19.5%. In computing the amount of taxable income, amounts transferred to reserves—including dividends received—are treated as if they were expenditures and, thus, are deductible.
• Finnish dividends paid to non-resident pension plans are subject to withholding tax at a rate of 19.5% (or a lower rate under an applicable income tax treaty), but computed without a deduction for amounts transferred to reserves.

The European Commission contended that because of the application of the Finnish tax relief provisions, pension plans that are residents of Finland are exempt (or practically exempt) from tax. Thus, non-resident plans are put at a disadvantage. The EC asserted this different treatment was in breach of the free movement of capital under the EU Treaty.

The Advocate General agreed with the EC’s findings that these rules constituted a restriction of the free movement of capital. While acknowledging that such different tax treatment could be neutralized by income tax treaties, the Advocate General found that Finland had not demonstrated that the tax-favorable treatment of Finnish resident pension plans was available to non-resident pension plans under the reduced withholding tax rates provided by applicable income tax treaties.

Read a July 2012 report [PDF 50 KB] prepared by KPMG’s EU Tax Centre: Advocate General opinion on discriminatory tax treatment of non-Finnish pension funds