Comparability of Investment Funds – another Finnish referral to the Court of Justice of the European Union – another positive signal

Source : Atoz Alert
9 novembre 2021 par
vanessa Icardi Serrami

Recently, an Advocate General’s opinion (the “Opinion”) on Finnish CJEU case C-342/20 (the “Case”) has been published.

The Opinion is very interesting as the Case reviews the comparability of a foreign investment fund to Finnish funds and, consequently, the possibility for a foreign investment fund to obtain a withholding tax (“WHT”) exemption in Finland.

The Case concerns the WHT treatment of a foreign corporate based investment fund, in this case a French Real Estate Investment Company. The essence of this Case is, however, related to the question whether the new Finnish tax regime applicable from the beginning of 2020 – allowing tax exemption only for foreign contractual based investment funds – is in line with the EU law. Although this Case concerns a French corporate based fund, the Finnish Supreme Court has decided to postpone their decisions on several cases related to US investment funds and wait for the C-342/20 CJEU decision.

According to the Advocate General’s opinion, the new Finnish tax legislation concerning the tax exemption of foreign investment funds contains a restriction of the free movement of capital enshrined in the Treaty on the Functioning of the European Union (“TFEU”). The opinion of the Advocate General states clearly that different treatment based solely on the legal form of the foreign investment fund is against the principle of free movement of capital.

The Opinion is in line with the previous CJEU judgment related to Finland, which was published this spring (C-480/19), and we would expect that also the actual decision of the CJEU in case C-342/20 will follow this trend.

As we informed you in our ATOZ Alert dated 26 June 2019, case C-480/19 concerned a UCITS fund incorporated as a Luxembourg corporate-type investment fund (SICAV) and the taxation of a Finnish natural person who has invested in this type of fund.

In the decision published, the CJEU ruled that treating income differently based solely on the legal form of the paying entity is against the principle of free movement of capital as provided by TFEU.

Although the C-480/19 case concerns the tax treatment of a Finnish individual, this decision is very relevant also when considering comparability of foreign investment funds and Finnish investment funds, as the CJEU states