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Finland: Foreign Pension Tax Rules Amended

(Dec. 11, 2014) On January 1, 2015, Finland’s amended Law on Taxation of Non-Residents will become effective. (Law No. 975/2014, FINLEX [scroll down to find the link to the legislation by number and select Finnish or Swedish text], amending Law No. 627 (Aug. 11, 1978), FINLEX; Laura Ambagsheer-Pakarinen, Finland; European Union: Taxation of Foreign Pension Funds Amended, TAX NEWS SERVICE (Dec. 3, 2014), International Bureau of Fiscal Documentation online subscription database.) The change revises provisions on foreign pension funds.  It was published in the country’s Official Gazette on December 2, 2014. (Ambagsheer-Pakarinen, supra.)

The amendment is designed to make Finnish law on pension funds congruent with a decision of the Court of Justice of the European Union. That ruling held that previous legislation that had imposed higher tax rates on foreign pension funds than on domestic ones was improper, because it contradicted the principle of the free movement of capital established in the EU and the European Economic Area (EEA) founding documents. (Consolidated Version of the Treaty on the Functioning of the EU, art. 63, 2013 O.J. (C326) 1, available at EURLEX; Agreement on the European Economic Area (updated on Oct. 14, 2014), art. 40, European Free Trade Association website.)

The new provisions will apply to dividends paid on or after the effective date of the amended Law. The changes affect the deductability of some costs from the tax base, as well as withholding procedures. (Ambagsheer-Pakarinen, supra.)


The amendment specifies that “foreign pension funds receiving dividends on shares held as investment assets from Finnish companies” may deduct the part of the dividends from Finland that represents the funds’ turnover. (Id.) No withholding will be imposed on the income deemed deductible if:

1) the pension fund is resident in another country in the EEA; or
2) the pension fund is resident outside the EEA, and

a) its direct ownership of the share capital of the company paying the dividends is less than 10%;
b) it is located in a country that has an agreement on exchanging information with Finland; and
c) it is in a country from which Finland can in fact obtain information. (Id.)

Any pension fund, regardless of where located, must provide information to the tax authorities of Finland concerning the amounts and justifications for any deductions it claims. (Id.)

Withholding Tax

Dividends paid to foreign pension funds within the EEA are subject to a withholding rate of 15%, if they 1) correspond to a Finish pension fund and 2) are not covered by the EU Directive on parent and subsidiary companies (which would apply if the pension fund directly owns 10% of the company distributing the dividends). (Id.; Council Directive 2011/96/EU of 30 November 2011 on the Common System of Taxation Applicable in the Case of Parent Companies and Subsidiaries of Different Member States, 2011 O.J. (L 345) 8, available at EUROPA.)

Dividends paid to foreign pension funds that are not located in a an EEA country are subject to the same rate, as long as the fund meets these two standards and is located in a nation that both has concluded an information-sharing agreement and in fact is a place from which Finland can obtain information. (Ambagsheer-Pakarinen, supra.)