Finnish investment funds qualify as separately taxable corporate entities for Finnish tax purposes. Based on a special provision of the Income Tax Act, investment funds are fully tax-exempt entities.

Non-resident investment funds are subject to withholding tax on Finnish-source dividends. Provided that the non-resident fund is tax-exempt in the country of residence, the Finnish withholding tax remains as a final tax burden.

In its rulings, the Administrative Court stated that the difference in tax treatment between resident and non-resident investments funds was not justified and therefore the Swedish investment funds should have been entitled to tax refunds.

The rulings could encourage other foreign investment and pension funds to claim for tax refunds from Finland. Foreign investment funds should claim for refunds for dividend withholding taxes within five calendar years following the year during which the withholding tax was levied.

Current Finnish tax law includes an exit tax provision whereby the tax neutrality is forfeited if the shareholder moves abroad from Finland within three years after the end of the year of the share exchange. In this case, exit tax is calculated as the difference between the acquisition cost of the original shares and the value of the shares received in exchange.

According to the proposed regulations, the exit tax is triggered when the shareholder moves outside of the EEA or forwards the shares after moving to another EEA country within five years after the end of the year of the share exchange.

This means that moving within the EEA will no longer trigger the exit tax, provided the shares are held for at least five years.

The amendments are expected to be applicable for the first time in the 2012 tax assessment. However, due to the extension of the time limit, the amendments would be applicable to share exchange arrangements which have taken place after 1 January 2009.