The Finnish Supreme Administrative Court (Korkeinhallinto-oikeus, KHO) gave its decision on 17 April 2013 in the case of KHO:2013:72. Details of the decision are summarized below.
(a) Facts. A Oy, a company resident in Finland (FIN Oy), received portfolio dividends from a group's parent company resident in the United Kingdom (UK Co) between 2002 and 2004 during which time Finland applied an imputation credit system. The assets of UK Co consisted of dividends it received from its subsidiaries which were running the business of the group.
After the European Court of Justice in Manninen (C-319/02) ruled that the Finnish rules, under which imputation credit was only available for dividends received from Finnish companies, were incompatible with the free movement of capital principle under article 56 EC Treaty (now article 63 Treaty on the Functioning of the EU (TFEU)), Finland abolished the imputation credit system. Furthermore, Finland enacted a law according to which taxpayers who had suffered from a heavier tax burden could claim a refund for the tax paid on dividends received from companies resident in another EU/EEA country. FIN Oy was granted a refund of the dividends received but the actual amount was only marginal due to the low tax burden imposed on UK Co in the UK. FIN Oy appealed on the tax authorities' decision and claimed that the imputation credit should be calculated based on the statutory corporate income tax rate applicable in the UK (i.e. refund of 30/71 of the dividends received instead of 29/71) and that it should also take into consideration the tax paid by the subsidiaries of UK Co. (The facts of the case do not disclose in the countries in which the subsidiaries were resident.)
(b) Issues. The issues were whether Finland, when calculating the imputation credit, should take into account:
|-||the statutory income tax rate instead of the tax actually paid; and|
|-||the corporate income tax paid by the subsidiaries of UK Co.|
(c) Decision. The Court did not find any grounds from EU law perspective to apply the statutory income tax rate of the UK instead of the tax actually paid when calculating the imputation credit granted to FIN Oy. Based on Manninen, it is clear that an imputation system for the elimination of economic double taxation on dividends, which grants a credit for the underlying corporate income tax with respect to domestic dividends has to also grant such credit for dividends distributed by companies resident in other Member States. The Court elaborated on various ECJ decisions but found it, nevertheless, unclear how far a Member State is obliged to go in order to substantiate the corporate income tax paid and by which entities in a chain of companies. The Finnish imputation credit system formed a coherent system combining various components of the domestic tax system. Hence, it would be very difficult to apply that system to even very simple cross-border situations. One major problem in this would be obtaining information on the ownership structure, income received and taxes paid by various entities etc. The Court did not see it reasonable that the tax authorities would have far fetching obligations in this respect. The burden of proof lies primarily on the taxpayer claiming for a credit which exceeds the credit as calculated based on the domestic law. A credit in excess of the credit under domestic rules could only occur in rather simple structures where it is easy to establish how and where the income of the entity has accrued. In addition, the taxpayer has to be able to provide the tax authorities with comprehensive and reliable evidence needed to calculate the credit. The Court acknowledged that FIN Oy had provided some information of such facts but deemed those, however, insufficient. Consequently, the Court did not see any grounds to change the decision delivered by the district administrative court of Helsinki which had ruled that the refund would be 29/71.