Finland: Tax-exemption regime for investment funds, possible refund opportunity

Finnish investment fund tax exemption regime contains a restriction on free movement of capital

Investment fund tax exemption regime contains a restriction on free movement of capital

The Advocate General of the Court of Justice of the European Union (CJEU) issued an opinion in a case concerning Finland’s tax-exemption regime for investment funds. The Advocate General concluded that this regime contains a restriction on the free movement of capital.

If the CJEU agrees with the opinion of the Advocate General, this may present an opportunity for non-Finnish investment funds to obtain refunds of withholding tax.

The case is: Veronsaajien oikeudenvalvontayksikkö (Exonération des fonds d’investissement contractuels), C-342/20 (6 October 2021)


The issue in the case concerns the tax treatment of a French corporate-form fund in Finland.

According to the Advocate General:

  • The Finnish investment fund tax-exemption regime designed for contractual based funds contains a restriction on the free movement of capital.
  • A French open-ended corporate-form investment fund is to be treated similarly as a Finnish open-ended contractual-based investment fund for Finnish income tax purposes—notwithstanding the difference in the legal form.
  • The funds are in a comparable position, and the difference in tax treatment cannot be justified by an overriding reason in the public interest. 

KPMG observation

The opinion of the Advocate General is a logical extension to an earlier CJEU judgment (2021) regarding the tax treatment of a Finnish unitholder in a foreign corporate-form fund. In the earlier judgment, the CJEU held that the income received from a foreign corporate-form fund is not to be treated differently from the income received from a Finnish contractual-based fund for Finnish income tax purposes because the funds were in a comparable position, despite their legal forms.

The October 2021 opinion of the Advocate General would extend this conclusion. Most corporate-form funds (especially European SICAVs) have not been found to be comparable with Finnish contractual funds (and thus not entitled to full withholding tax refund). 

The Advocate General’s opinion includes what some believe may be important comments relating to the comparability assessment in general—it is not acceptable to base a tax-exemption regime on criteria that are “natural” for Finnish resident funds to satisfy. Such criteria are arbitrary and give rise to indirect discrimination.

The Advocate General’s opinion is not binding on the CJEU. Rather, it is the role of the Advocate General to propose to the CJEU a legal solution to the assigned case. The CJEU judges now will begin their deliberations in this case, with a judgment to be given at a later date. Tax professionals in Finland anticipate that the CJEU will deliver its judgment around the end of 2021, and some expect the CJEU to adopt a similar approach as the Advocate General. Accordingly, non-resident corporate-form funds need to consider filing protective claims for refunds of withholding tax in Finland and then to file appeals or take other appropriate steps if or when the Finnish tax administration rejects these refund claims.

Read an October 2021 report prepared by the KPMG member firm in Finland

For more information, contact a KPMG tax professional in Finland:

Kristiina Äimä | +358 (0)20 760 3698 |

Aki Kokko | +358 (0)20 760 3000 |


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