Dividends paid to nominee-registered shares
The OECD Treaty Relief and Compliance Enhancement (TRACE, pdf) procedure is applied to dividends paid by publicly listed companies to nominee-registered shares, the beneficiaries of which are non-resident taxpayers. TRACE is a system for withholding tax at source on distribution of profits in accordance with tax treaties, in other words how tax treaty benefits can be granted at the time of payment. In Finland the procedure in accordance with TRACE has been implemented since the beginning of 2021, meaning that the procedure is first applied to dividends paid in 2021.
In Finland, the key elements of the TRACE procedure are:
- the Register of Authorised Intermediaries,
- the Investor Self Declaration (ISD),
- and annual information returns using the TRACE schema.
One of the options in the TRACE model is the implementation of an evaluation system where an “independent reviewer” performs evaluations. OECD member states can carry out the reviews as necessary. Finland has not opted for independent reviewing as outlined in the TRACE IP. However, authorised intermediaries can have similar reviews conducted if they hire an independent reviewer on a voluntary basis. They can then use the reviewer’s report as proof that they have followed legal requirements and the Finnish Tax Administration’s guidelines.
Primary tax liability on the Authorised Intermediary
An Authorised Intermediary registered in the Tax Administration's register can take responsibility for dividends paid by publicly listed companies to nominee-registered shares, when the dividend beneficiary is a nonresident. Any custodian in the custodial chain can apply into the register, whether they are a domestic or foreign entity, as long as the custodian fulfils the requirements for registration.
In practice, taking responsibility for dividends means that the Authorised Intermediary is responsible for any under withholding, if it has not used reasonable measures to investigate and identify the dividend beneficiary, and therefore verified the beneficiary's entitlement to the granted tax benefit. Identifying information on dividend beneficiaries, such as name, tax identification number and address, also need to be reported to the Tax Administration on an annual information return when the applied tax-at-source is less than 35%.
Read more about the requirements for registration and the responsibilities and liabilities of an Authorised Intermediary.
Contractual intermediaries, as described in the TRACE Implementation Package, are known by the translated Finnish name: “rekisteröitymätön säilyttäjä”. Their roles and responsibilities are agreed with the authorised intermediary or with the payor that they have signed a contract with. Finnish legislation contains no regulations as to how the agreements should be set up between contractual and authorised intermediaries. However, the intermediaries can use the templates found in the TRACE IP for writing up various agreements between one another.
In the same way, Finland will not implement a list of “excluded” intermediaries as suggested in the TRACE IP.
Treaty benefits already during the year of payment
Tax treaty benefits can be granted to the dividend beneficiary during the year of payment, if an Authorised Intermediary or the payor has taken responsibility of the dividends in question. An Authorised Intermediary or the payor is considered to have used reasonable measures, if it has followed the Tax Administration's decision and guidance on the Investor Self Declaration procedure when investigating and identifying the dividend beneficiary. Tax benefits can be granted at the time of payment or through the self correction procedure, i.e. the quick refund procedure.
The Investor Self Declaration (ISD) can be utilised when granting tax treaty benefits. The ISD is a declaration given by the dividend beneficiary of their entitlement to a potential tax benefit. The Authorised Intermediary's or the payor's task is to verify the reliability of the ISD. For the purpose of investigating the dividend beneficiary's country of residence, a tax-at-source card issued by the Tax Administration or a certificate of residence issued by local tax authorities can also be utilised instead of an ISD.
Annual information returns submitted in XML format
Both an Authorised Intermediary and a publicly listed company give annual information returns concerning nominee-registered shares with the TRACE XML Schema. The first XML annual information returns are submitted by the end of January 2022 and they concern dividends paid in 2021.
Primary tax liability on the payor in certain situations
An Authorised Intermediary can only take responsibility for dividends paid by publicly listed companies to nonresidents where the underlying shares are nominee-registered. In other situations, the primary tax liability and reporting responsibility is with the dividend paying company, also referred to as payor.
The primary tax liability and reporting responsibility of the payor also concerns situations, where the payor does not receive the dividend beneficiary information on a dividend paid to a nominee-registered share and the dividend beneficiary is a Finnish tax resident. In such situations, 50 percent preliminary withholding tax must be withheld on the dividend.
A refund of excess tax-at-source withheld can be requested from the Tax Administration
If too much tax-at-source has been withheld during the year of payment, the nonresident dividend beneficiary can request a refund of tax-at-source from the Finnish Tax Administration. The refund application can be submitted either by the dividend beneficiary themselves or an agent acting on their behalf, such as an Authorised Intermediary or consultancy firm.