Finnish Royalties To Estonia No Longer Taxed
The Finnish Tax Administration has confirmed that the payment of Finnish-sourced royalties to taxpayers in Estonia are not subject to withholding tax under the Finland’s double tax avoidance treaty with the Baltic state.
In a tax administration bulletin issued on October 3, the Finnish tax authority said that as of January 1, 2016, royalties paid to Estonia are no longer taxed at source. The change was required after Estonia informed Finland that a similar provision exists in one of its tax treaties with a third state, therefore triggering the most-favored nation clause in the Finland-Estonia double tax agreement.
Previously, Article 12 of the treaty stipulated that a five percent tax was due on royalties related to industrial or commercial processes, or scientific equipment. A 10 percent tax applied on all other royalties.
However, referring to an announcement by the Finnish Ministry of Finance on August 18, 2016, the Tax Administration confirmed that the text of sections 2 and 3 of Article 12 of the treaty has been amended so that royalties are not subject to tax in the Contracting State from which they were derived.
According to the Tax Administration, the term “royalties” as used in Article 12 means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic, or scientific work including cinematograph films, and films or tapes for television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience.
The Finnish Tax Administration confirmed that tax returns may be adjusted and tax refunds applied for if tax at source has been collected in spite of the new clauses.