Fund Taxation Alert 2022-03

A Luxemburg based listed SICAV ("the claimant") received a positive WHT refund decision from the Administrative Court of Helsinki ("the Court") on 29 October 2021. The decision relates to the early 2000's when Finland applied the "avoir fiscal" system to dividend taxation, during which period the claimant received dividends from Finnish entities. The claimant, being an open-end investment fund with variable capital and its units being traded on a stock exchange, was found by the Court to be comparable to a tax-exempt Finnish investment fund.

This is the first time that a Finnish court recognizes that a SICAV should be treated as an investment fund, rather than as a company. The Court's decision regarding the comparability of SICAVs with Finnish investment funds was influenced by the ruling of the Court of Justice of the European Union in case C-480/19, and as a result, it held that it was contrary to art. 63 TFEU to levy WHT on the dividends received by the claimant. Since the Finnish Tax administration did not file an appeal, the Court’s decision remains final.

Notwithstanding that the case concerned an era during which Finland still had the “avoir fiscal” system, this case may be a reference point for the future assessment of SICAVs in the WHT practice in general. This is particularly true since it is coherent with other EU-law-based positive decisions that concern non-resident corporate investment funds. We will continue to monitor and provide information when relevant. In the light of the decision, we highly recommend continuing filing WHT reclaims for non-listed SICAVs in Finland. 

1. The Finnish Tax Administration’s interpretation from Sec. 20a ITA is that UCITS-funds must have at least 30 investors to qualify as tax exempt. This interpretation presents more difficulties for a UCITS-fund to benefit from exemption, when compared with non-UCITS funds that can under certain criteria have less than 30 investors and qualify as tax exempt.
2. It is expected that non-UCITS funds with less than 30 investors which do not distribute at least ¾ of their annual profits before unrealized gains to the investors will receive negative first instance WHT refund decisions unless the investment funds are not transparent for tax purposes. Negative decisions should be appealed because the profit distribution requirement is contrary to the settled EU law-based tax practice. 

Both changes are contrary to the established EU law-based tax practice. Therefore, UCITS-funds with less than 30 investors should continue to pursue EU-law-based withholding tax benefits in Finland, because the interpretation is expected to change with upcoming case law developments.

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