The Central Tax Board (CTB) has confirmed in its recent rulings (36/2020 and 37/2020) that US investment funds that are in the form of trusts can be deemed tax exempt also under the new tax provisions of Section 20a of the Finnish Income Tax Act. The CTB’s rulings involved deliberation on whether listed and non-listed US investment funds in the form of Delaware Statutory Trusts can be considered comparable to Finnish investment funds. Borenius assisted the investment funds during the advance ruling process.
Despite the differences in legal form, the CTB ruled that the investment funds in question can be considered comparable to the income tax exempt Finnish investment funds as intended in Section 20a of the Finnish Income Tax Act. On these grounds, dividend income received by the funds from Finnish listed companies was deemed tax exempt.
The impact of the Central Tax Board’s decisions
The CTB’s decisions are in line with the established legal and tax praxis that applied prior to the enactment of the new tax provisions under which US investment funds in the form of trusts were considered tax exempt because they could be considered comparable to tax exempt Finnish investment funds. The CTB’s decisions confirm the incorrectness of the Finnish Tax Administration’s recent practice under which investment funds in the form of trusts were not considered tax exempt because the Finnish Tax Administration did not consider the legal form of these funds to be contractually based.
The CTB’s decisions further confirm that the income tax exemption should be granted to foreign investment funds that are objectively comparable to tax exempt Finnish investment funds. In this respect, the focus should be on the operational and legal characteristics of the funds, and the assessment cannot be made solely based on the legal form thereof. Limiting the applicability of the tax exemption provisions based on the legal form of the funds is against EU law and the established legal practice of the CJEU.
Previous rulings and future proceedings
The CTB’s approach is a logical corollary to previous Administrative Court rulings confirming that US Incs can be deemed objectively comparable to tax exempt Finnish investment funds despite the legal form of the US funds. The Administrative Court rulings were confirmed by the Supreme Administrative Court in October 2020. Borenius acted as advisor also in these proceedings.
The CTB’s rulings are not yet final as the Tax Recipients’ Legal Services Unit can lodge an appeal against them with the Supreme Administrative Court. Borenius’ tax experts will continue monitoring the situation for any developments and are available to assist in addressing any questions you may have regarding the CTB’s rulings.