The Administrative Court of Helsinki has recently issued decisions which grant the refund of Finnish withholding tax on dividends to Swedish tax-exempt investment funds.
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..