Finnish Update: CJEU Rules Finnish Tax Exemption for Contractual Investment Funds is Contrary to EU Law

In the case A SCPI v. Finland (C-342/20), a decision on 7 April 2022 by the Court of Justice of the European Union (CJEU) found that Finnish legislation, which exempted contractual investment funds from paying income tax, while comparable corporate foreign investment funds were subject to income tax, is contrary to EU Law.

The Applicant’s Case against Finland’s Tax Exemption Regime

The tax exemption under question in case C-342/20 is contained in §20a of the Finnish Income Tax Act. The tax exemption, which came into effect on 1 January 2020, exempts foreign contractual based investment funds from Finnish income tax, while investment funds established under a different (corporate) legal form are not privy to this exemption. Although the case specifically dealt with the tax on rental income and profits on the disposal of immovable property or shares in companies owning immovable property in Finland, the same principles could be extended to Finnish dividend withholding taxes.

The applicant, a French resident investment fund established as a company with variable capital (Société Civile de Placement Immobilier à Capital Variable), was considered comparable to a Finnish investment fund and thus exempt from Finnish income tax for income received during the 2019 year.

However, in the opinion of the Finnish Tax Authority, income received during 2020, after the legislative changes introduced by §20a of the Finnish Income Tax Act, would be subject to Finnish income tax. The Finnish Tax Authority had the view that the applicant, established as a company in France, should be treated as a limited liability company under Finnish law, rather than a contractual investment fund and hence be excluded from the exemption.

The Applicant disagreed with the Finnish Tax Authority and argued that its functional characteristics were comparable to that of a contractual Finnish investment fund, despite it being established as a company, in line with French legislation. The case was subsequently referred to the CJEU by the Administrative Court in Helsinki.

The Result of Case C-342/20: CJEU Takes View Against Finnish Tax Authority in Favour of French Investment Fund

In the decision taken on 7 April 2022, the CJEU agreed with the previous opinion of the Advocate General and took a position against the Finnish Tax Authority’s view concluding that the French fund should be entitled to the income tax exemption, despite not being formed as a contractual investment fund.

The CJEU held that different treatment based solely on the legal form of the foreign investment fund may result in an unjustified restriction on the free movement of capital, notwithstanding the legislation not specifically distinguishing between domestic and foreign funds. The CJEU identified this as de facto discrimination.

Finnish investment fund law only allows funds to be constituted in contractual form. This enables Finnish funds to qualify for the income tax exemption while foreign funds constituted in corporate form, in accordance with their respective countries’ legislation, cannot. This places the corporate foreign investment funds at a disadvantage when compared to Finnish funds.

The CJEU stated that the restriction on the free movement of capital is present even though, under Finnish law, alternative investment funds (AIFs) (which within the meaning of Directive 2011/61 carry out investments in immovable property) can be set up in corporate form, which are not entitled to the exemption. Finnish funds have the option to choose between contractual and corporate forms, thereby enabling them to benefit from the exemption. This opportunity is not necessarily available to foreign investment funds that are authorized and established under the laws of their respective resident Member States.

The justifications for the restriction brought forward by the Finnish Tax Authority were rejected by the CJEU. These justifications included preserving the effectiveness of tax supervision, the collection of taxes and the coherence of the Finnish tax system.

The decision shares similarities with the judgement of the case C-480/19 – Veronsaajien oikeudenvalvontayksikkö (Revenus versés par des OPCVM). In that case, it was found that income received from a SICAV (corporate form) should be treated in a similar manner to income received from a domestic contractual fund, as the funds are comparable despite different legal forms.

Foreign Corporate Funds Should File for Tax Reclaims of Finnish Withholding Tax

The decision taken by the CJEU confirms that foreign corporate funds should also be entitled to the exemption under §20a of the Income Tax Act with regards to withholding taxes on Finnish dividends, provided that the other requirements of the section are met. The CJEU further reiterated the fact that foreign funds should not be disqualified from being comparable to Finnish investment funds simply because they are constituted under statute. This is encouraging news for funds, such as unlisted Luxembourg SICAVs, which have been denied full EU-law based withholding tax reclaims (“ECJ claims”) prior to 1 January 2020 and where the claims are currently pending an appeal.

Contact WTax to Benefit from the Latest Withholding Tax Reclaim Opportunities

WTax assists both EU and non-EU clients throughout the withholding tax refund journey; from assisting clients in filing the withholding tax reclaims, corresponding with the tax authority and appealing a decision if necessary. WTax encourages corporate form foreign funds to promptly file full reclaims for taxes withheld in Finland. Contact us at

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