KPMG comments on the new treaty between the Netherlands and Finland
This is contribution number 32 by KPMG Meijburg & Co regarding the new tax treaty between the Netherlands and Finland.
On December 29, 1995, it was announced that the Netherlands and Finland signed a new Treaty and protocol for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. The new Treaty replaces the existing Treaty which was signed on March 13, 1970 in Helsinki. The Treaty still has to undergo the required procedure of approval in both the Netherlands and Finland. If this procedure is completed on time in both countries, the new Treaty will take effect as of January 1, 1997.
The most important differences between the new and existing Treaty are as follows.
- The new Treaty is adapted to the so-called imputation system which was introduced to Finnish corporate income tax in 1990. If a company established in Finland distributes dividend to a shareholder resident in the Netherlands, that shareholder, contrary to a shareholder resident in Finland, will receive no tax credit. Under certain circumstances, however, the levy of compensatory tax will be omitted for the dividend distributing company in Finland.
- Under the new Treaty the exemption from withholding tax for participation dividends applies for participations of at least 5% rather than the current 25%. In the absence of the participation requirement, but under otherwise similar circumstances, the exemption also applies to dividends paid to recognized pension funds.
- The highest withholding tax allowed for other dividends remains in principle 15%. In Finland, however, a unilateral exemption applies as long as a resident of Finland is entitled to the tax credit mentioned above for dividends received.
- The tax exemption in Finland for an entity established there with regard to dividends from a company established in the Netherlands continues to apply, although a similar exemption in a national context has in the meantime been abolished. The participation in the Netherlands company has to represent at least 10% of the voting rights.
- According to the existing Treaty, private pensions, annuities and social insurance benefits are only taxable in the state of residence of the recipient. This regulation has been radically amended under the new Treaty. Social insurance benefits can now only be taxed in the source-state. Lump sum payments from private pensions and from annuities and social insurance benefits will only be taxed in the source-state. Instalments from private pensions and annuities will be taxed in the source-state at a maximum rate of 20%. There is however a transition regulation for those private and social insurance pensions and annuities which have already taken effect on the date the Treaty becomes applicable. These instalments will remain taxable in the state of residence of the recipient.
- The new Treaty contains the special provisions which are now normal in the Netherlands for activities carried on in the Continental Shelf.
- Pension premiums, including premiums for social insurance pensions, which are paid to an entity or a fund in the other state will be deductible at the same rate as premiums paid to entities and funds in the state of the payer.
This message is most likely to be relevant for entrepreneurs having a business interest in both the Netherlands and Finland.
Further information can be obtained from mr Alfred GM Groenen, MCL, KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247, or enter text search 'KPMG Meijburg & Co', and 'Business Monitor'.
Keywords: Netherlands / Dutch / Europe / EC / EU / European Union / KPMG Meijburg & Co / inward investments / MNE / treaty / taxation / Finland
Note: The content of this contribution is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
