On 4 April 2023, France and Finland signed a new double tax treaty (DTT). Once both countries have completed the ratification process, the new DTT will replace the initial treaty signed in 1970. The experts at Ecovis in France have put together what is changing and what companies need to consider.
The new DTT will not be covered by the OECD multilateral instrument (MLI), as it was signed after the MLI’s ratification by France and Finland. However, it now includes some provisions of the MLI.
What are the main changes in the France-Finland double tax treaty?
Entities concerned (Article 1): Inclusion of transparent entities located in Finland or in a third country which has concluded an administrative assistance agreement to combat tax evasion (French transparent entities are, however, excluded).
Taxes covered by the DDT (Article 2): Corporate income tax additional contributions and social security contributions (CSG and CRDS) are specifically mentioned, while wealth tax is no longer included.
Permanent establishment (Article 5): Inclusion of a new definition of a dependant agent and a rule against the artificial fragmentation of preparatory and ancillary activities.
Dividends (Article 10):
Introduction of a possible withholding tax, limited to 15% (or exemption if the effective beneficiary holds at least 5% of the distributing entity during a 365-day period including the day of payment)
Deemed distributed income is now covered
Exclusion of branch tax
Interests and royalties (Articles 11 and 12): Exclusive taxation in the country of the effective beneficiary.
Capital Gains (Article 13): Capital gains realised on the sale of shares or rights, whose value at any time during the 365 days preceding the sale derives directly or indirectly for more than 50% from immovable properties, are taxable in the country where those properties are located.
We can tell you everything you need to know about the new double taxation agreement between Finland and France. Vanessa Raindre, Tax partner, ECOVIS MD Legal, Paris, France
Employees income (Article 14):
The 183-day rules shall be counted during a period of 12 months “starting or ending” during the tax year concerned.
The exemption of taxation in the country where the activity is performed does not apply to the lending of labour (§4 of the Protocol).
Pensions (Article 17): In many cases, the source country now has the right to tax private pensions, but the double taxation will also be eliminated by the source country. This new measure will not apply to taxpayers who were already benefitting from private pensions on 4 April 2023 (taxation will only be allowed in their country of residence).
Elimination of double taxation (Article 21): The exemption method applicable in the current DTT is replaced by the tax credit method.
Non-discrimination (Article 22): Exclusion of the application of non-discrimination or most favoured nation clauses included in other DTTs signed by France or Finland. No arbitration clause.
Introduction of the general anti-abuse clause “Principal purpose test” of Art. 7 of the MLI (Article 27).