The Double Taxation Relief (Taxes on Income) (Finland) Order 1991

Explanatory Note

(This note is not part of the Order)

The Protocol scheduled to this Order makes certain alterations to the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Finland) Order 1970, as amended by three subsequent Protocols.

The Protocol amends the list of taxes in Finland covered by the Convention (Article I) and updates the definitions of “national” and “person” (Article II).

Following the reform of the corporation tax system in Finland, Article III of the Protocol gives a UKportfolio investor, receiving in 1990 a dividend from a Finnish company, thirteen twenty-firsts of the tax credit that would be available to a Finnish resident, and in 1991 and subsequent years five eighths of the tax credit available to a Finnish resident. The Protocol also gives a UK direct investor thirteen forty-seconds of the tax credit applicable in 1990 and five sixteenths of the tax credit available in 1991 and subsequent years. Tax may be charged in Finland on the aggregate of the dividend and the tax credit at rates not exceeding 15% for portfolio and 5% for direct investors. This is matched by the UKpaying the full tax credit to Finnish resident portfolio investors and a half tax credit to direct investors, less 15% and 5% respectively. Arrangements for future adjustments are included to take account both of possible movements in corporation tax rates in either Contracting State and the consequent effects on the value of the tax credits. The Elimination of Double Taxation Article is updated to take account of the reciprocal tax credits (Article VIII).

Amendments are also made to the Interest and Royalties Articles of the Convention to provide for reciprocal exemption of interest and royalties and to bring in new anti-abuse rules (Articles IV and V).

A new Article is introduced to provide for the taxation of pensions and annuities solely in the state of residence of the recipient, save that pensions and other payments under the social security legislation of the Contracting State may be taxed in the paying state (Article VI). A new Other Income Article replaces that currently dealing with income not expressly mentioned (Article VII).

The Protocol is to take effect in the UK on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The Protocol is to take effect in Finland in respect of dividends paid for any accounting period of the company making the distribution ending on or after 1st January 1990, in respect of taxes withheld at source on income, other than dividends, derived on or after 1st January in the calendar year next following that in which the Protocol enters into force, and in respect of other taxes on income and capital on or after 1st January in the calendar year next following that in which the Protocol enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes