By Ville Alahuhta, Counsel, LL. Lic, Bird & Bird Attorneys Ltd, Finland
The Advocate General on 6 October published an opinion concerning the Finnish tax treatment of a French investment fund in case C-342/20. The final resolution on the matter will be published later by the Court of Justice of the European Union.
The matter in question pertains to an advance ruling, which was requested from the Finnish Tax Administration by a French SCSPI (société civile de placement immobilier à capital variable) seeking to invest in Finnish real estate assets. The fund in question was established under French law and with variable capital. Further, unlike Finnish funds, the fund was not a contractual fund but instead a corporate form fund. The fund was treated as a tax transparent entity for French tax purposes.
The Finnish tax exemption that applies to investment funds (section 20a of the Income Tax Act) addresses only Finnish investment funds and foreign contractual funds that are deemed to correspond with Finnish investments funds as set out in the provision. The Finnish tax treatment applying to foreign corporate form funds has traditionally been assessed by detecting the most similar corporate form available in the Finnish legal system and taxing the foreign entity accordingly and to the extent applicable. Hence, in the case at hand, the administrative court did not treat the French fund as a tax-transparent entity for Finnish tax purposes.
In the opinion, the Advocate General determined that the requirement, according to which a foreign investment fund needs to be a contractual fund to be treated as tax transparent under the Finnish tax regulation, is contrary to the principle of free movement of capital set out in Article 63 of Treaty on the Functioning of the European Union (TFEU). The opinion is in line with the precedent issued earlier by the European Court of Justice in case C-480/19, which concerned the distribution of profit by a Luxembourgian SICAV fund to its unitholder tax resident in Finland.
The opinion of the Advocate General appears logical and its outcome was expected especially in light of the precedent C-480/19. Together with this precedent, the Court of Justice’s resolution, which will be published later, may result in a need to amend the existing Finnish tax treatment concerning foreign corporate form investment funds, as well as their unitholders tax resident in Finland.
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