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Details

  • Service: Tax, International Corporate Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 11/9/2012

Finland - Tax treatment of non-Finnish pension funds is discriminatory 

November 9: The Court of Justice of the European Union (CJEU) issued a judgment holding that the fact that Finnish resident pension funds can deduct amounts transferred to reserves from their taxable income, while non-resident pension funds cannot, is an unjustified restriction of the free movement of capital. Commission v. Finland, C-342/10 (8 November 2012)

Read the judgment: Commission v. Finland

Summary

The Finnish tax treatment of funded pension funds depends on the residence of the fund.


  • If the fund is resident in Finland, the income is taxable at a rate of 19.5%, and amounts transferred to reserves—including dividends received—are treated as expenditures and are thus deductible. In other words, dividends received by domestic pension funds are exempt or partially exempt from income tax.
  • If the Finnish dividends are paid to non-resident pension funds, the payments are subject to a 19.5% withholding tax (or a lower treaty rate, if applicable), but there is no possibility to deduct amounts transferred to reserves.

The European Commission found this treatment placed non- resident funds at a disadvantage, and was in violation of EU Treaty provisions.


The CJEU agreed with the EC that Finnish rules treat non- resident pension funds less favorably than domestic pension funds and that this treatment was incompatible with the free movement of capital.


Read a November 2012 report [PDF 65 KB] prepared by KPMG’s EU Tax Centre: CJEU decision on discriminatory tax treatment of non-Finnish pension funds




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