Opinion of the Advocate General — ECLI:EU:C:2021:823
Date: 2021-10-06
Language of the case: Finnish
Subject matter: Right of establishment;Taxation;Provisions governing the Institutions;Free movement of capital;Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Finland

Summary of the essential arguments of the parties 
21. The applicant argues that Paragraph 20a of the Law on income tax infringes EU 
law, as only funds constituted by contract with their head office in the EU are 
recognised as special funds. As described in the application for a preliminary 
decision, the applicant is an operator comparable in every regard to a Finnish 
investment fund, the only difference being that the applicant was constituted as a 
company, as required under French law, whereas investment funds under the 
Finnish law on investment funds are constituted by contract. 
22. It contends that, as stated in the decision of the Tax Authority for 2019, the 
applicant is comparable to a Finnish investment fund in terms of its functional 
characteristics and that the fact that the Law on income tax has been amended 
does not change that. 
23. The applicant considers that Paragraph 20a of the Law on income tax constitutes 
prohibited State aid for Finnish funds, because they are constituted by contract 
and thus qualify for tax exemption, whereas foreign funds in the form of a 
company or trust are liable for income tax in Finland, regardless of the fact that, 
objectively speaking, the funds are the same. 
24. The Veronsaajien oikeudenvalvontayksikkö (Tax Recipients Legal Services Unit, 
Finland) argues that it is the settled case-law of the Court that, although direct 
taxation falls within their competence, the Member States must nonetheless 
exercise that competence consistently with EU law (see, for example, the 
judgment in Case C-632/13, paragraph 28); that, as there are no harmonised rules 
on the form of mutual investment activities and taxation of their income at EU 
level, the Member States are entitled to impose different national requirements 
depending on the form of the mutual investment activity and how it functions; that 
the Member States are also entitled to tax different forms of mutual investment 
activities in different ways; and that the applicant does not fulfil the conditions for 
tax exemption for special funds constituted by contract laid down in 
Paragraph 20a(4) of the Law on income tax. 
Provisions of national law cited and legislative material 
National legislation applicable in the tax year 2020 
25. According to Paragraph 3(4) of the Law on income tax, in the version of 
Amending Law No 528/2019, corporations within the meaning of that law include 
share companies, investment funds and special funds. [Or. 5] 
26. According to Paragraph 9(1), point 2, of the Law on income tax, persons who 
were not resident in Finland in the tax year and foreign corporations are liable for 
income tax on their income in Finland (limited tax liability). 
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27. According to Paragraph 10(1) of the Law on income tax, income generated in 
Finland includes income from real estate located in Finland or from premises 
owned through shares in a Finnish housing or other share company or membership 
of a housing or other cooperative. 
28. According to Paragraph 10(6) of the Law on income tax, income generated in 
Finland includes dividends, surpluses generated by a cooperative and other 
comparable income from a Finnish share company, cooperative or other 
corporation, as well as shares in the income of a Finnish group. 
29. According to Paragraph 10(10) of the Law on income tax, income generated in 
Finland includes capital gains from the sale of real estate located in Finland or of 
shares or units in a Finnish housing share company, other share company or 
cooperative, over 50 percent of the total assets of which comprise one or more 
properties located in Finland. 
30. According to the version of Paragraph 20a(1) of the Law on income tax that 
entered into force at the beginning of 2020 (in the version of Amending Law 
No 528/2019), investment funds within the meaning of Paragraph 2(1), point 2, in 
Chapter 1 of the Sijoitusrahastolaki 213/2019 (Law on investment funds No 
213/2019) or comparable foreign open-ended investment funds constituted by 
contract with a minimum of 30 unit holders are exempt from income tax. 
31. According to Paragraph 20a(2) of the Law on income tax, the provisions of the 
first paragraph governing the exemption from tax for investment funds also apply 
to special funds within the meaning of Paragraph 1(2) in Chapter 2 of the Laki 
vaihtoehtorahastojen hoitajista 162/2014 (Law on alternative investment fund 
managers No 162/2014) and comparable foreign special funds constituted by 
contract, provided the fund is open-ended and has a minimum of 30 unit holders. 
32. According to Paragraph 20a(4) of the Law on income tax, the condition for tax 
exemption for a special fund within the meaning of Paragraph 1(2) in Chapter 2 of 
the Law on alternative investment fund managers or for a comparable foreign 
special fund constituted by contract which invests its funds primarily in real estate 
and real estate securities in the way referred to in Paragraph 4 in Chapter 16a of 
that law is that it must distribute at least three-quarters of the profit for the 
financial year, disregarding unrealised capital gains, to its unit holders every year. 
33. According to Paragraph 20a(7) of the Law on income tax, where an investment 
fund or a special fund comprises one or more sub-funds, the provisions governing 
investment funds or special finds apply to the sub-fund(s). 
Legislative material on Paragraph 20a of the Law on income tax 
34. The provisions governing the conditions for tax exemption for investment funds 
and special funds are detailed in government exhibit HE 304/2018. The provisions 
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governing tax exemptions were enacted later, in Paragraph 20a of the Law on 
income tax in the version of Amending Law No 528/2019. [Or. 6] 
35. Section 2.3.2 of the government exhibit states that, prior to the Amending Law, 
the tax treatment of foreign investment funds was not addressed anywhere in the 
Law on income tax or in the Lähdeverolaki (Law on withholding tax); that their 
tax treatment was decided case by case by interpreting the principle of the free 
movement of capital in the EU and the circumstances that need to be taken into 
account for the purpose of regarding foreign operators as equivalent to domestic 
operators; that the tax treatment of investment funds was regulated only 
marginally in domestic law, which may be why foreign funds were very widely 
regarded as equivalent to domestic investment funds; that it would appear, based 
on EU case-law, that only the grounds for differentiation regulated in national tax 
legislation were taken into account when considering different tax treatment, 
meaning that the characteristics of an investment fund or of a special fund 
regulated in national legislation on investment funds, for example, were irrelevant 
when it came to assessing their comparability; that, however, it was not clear from 
national case-law and the case-law of the Court what circumstances have to be 
taken into account when judging comparability; that, based on the case-law of the 
Court, however, it would appear that minor differences in legal form or 
differences in tax treatment in the state of establishment of a foreign investment 
fund do not amount to an objective difference for the purpose of judging 
comparability; and that the case-law expressly focuses on the tax treatment of 
investment funds, not on the tax treatment of investors. 
36. Section 3.2 states that the government proposal aims to take account of the need to 
amend tax legislation that follows from the proposed amendments to the 
legislation on investment funds, and that the purpose of the government proposal 
is to bring clarity to situations in which a foreign investment fund is regarded as 
equivalent to a tax-exempt Finnish investment fund or special fund for tax 
purposes, thereby making their tax treatment more predictable, improving legal 
certainty and reducing bureaucratic expenditure. 
37. It states that, as the applicable Law on income tax does not define investment 
funds, comparability criteria have had to be established in taxation practice and 
case-law; that, as the current national tax legislation is generally complied with, 
foreign funds have been readily regarded as equivalent to Finnish investment 
funds; that Finnish investment funds or special funds are not necessarily treated 
similarly abroad or may otherwise be subject to stricter regulation than foreign 
funds, which could be regarded as problematic in terms of competitive neutrality; 
and that the government proposal was designed to put domestic and foreign funds 
on an equal footing in that regard. 
38. It states that one starting point that must generally be taken into account for tax 
purposes in Finland is that tax treatment depends on the legal form of the 
investment instrument; that the proposal is not intended to change those premises; 
and that Finnish investment funds and special funds are constructs constituted by 
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contract and the purpose of the government proposal is to clarify the tax 
legislation solely with regard to domestic and foreign funds constituted by 
contract. 
39. Section 3.3 states that the purpose of the provision is not to derogate from the 
general premises governing taxation in Finland, that is that tax treatment depends 
on legal form, and that, as the intention is not to extend the tax exemption to 
instruments for mutual investments in securities established in a different form 
[Or. 7], it is not proposed to apply the provision in question to instruments for 
mutual investments in securities other than those constituted by contract, to which 
it applies, moreover, only if the conditions are fulfilled. 
40. It states that the principle of the free movement of capital enacted in the TFEU 
prevents domestic and foreign investment funds from being treated differently for 
tax purposes; that the dividends paid by a foreign investment fund in the same 
situation as that in which a domestic investment fund is exempt from tax should 
not be subject to withholding tax; that, however, the tax rules for investment funds 
need to be clarified, taking account of the need for interpretation and the resultant 
bureaucratic expenditure in equivalence cases; that this will also clarify the 
situation in which a foreign fund can be regarded as equivalent to a Finnish 
investment fund or special fund; and that the applications for withholding tax 
refunds would also have fiscal implications. 
41. It states that taxation in Finland depends on the legal form of the investment 
instrument; that Finnish investment funds are constructs constituted by contract 
with no legal personality of their own regarded as a set of assets exempted from 
tax under special rules; and that, based on their legal form, foreign investment 
funds can be treated as equivalent to Finnish share companies for tax purposes. 
42. Report VAVM 34/2018 of the Committee on Financial Affairs states that the 
committee noted that the government proposal disregards foreign investment 
funds within the meaning of the Investment Funds Directive and funds in the form 
of a trust; that the tax exemption was tailored exclusively to investment and 
special funds constituted by contract, as all funds established in Finland must be 
constructs constituted by contract; and that an interpretation of EU law is still 
required for the purposes of the tax treatment of investment firms and funds in the 
form of a trust. 
43. However, the committee considered the government proposal to be well-founded, 
even in that regard, as the proposed amendments would adjust Finnish tax 
legislation so that it could be assumed to comply with the requirements imposed 
under the previous case-law of the Court in connection with the tax treatment of 
foreign funds to be regarded as equivalent to Finnish investment or special funds, 
and that it was also important that the basis for taxation in Finland should not be 
narrowed unnecessarily in cross-border situations. 
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Relevant EU law: 
Treaty on the Functioning of the European Union 
44. According to Article 49(1) TFEU, restrictions on the freedom of establishment of 
nationals of a Member State in the territory of another Member State shall be 
prohibited. Such prohibition shall also apply to restrictions on the setting-up of 
agencies, branches or subsidiaries by nationals of any Member State in the 
territory of any Member State. 
45. According to Article 63(1) TFEU, within the framework of the provisions set out 
in this Chapter, all restrictions on the movement of capital between Member 
States and between Member States and third countries shall be prohibited. [Or. 8] 
46. According to Article 65(1)(a) TFEU, the provisions of Article 63 shall be without 
prejudice to the right of the Member States to apply the relevant provisions of 
their tax law which distinguish between taxpayers who are not in the same 
situation with regard to their place of residence or with regard to the place where 
their capital is invested. 
47. According to Article 65(3) TFEU, the measures and procedures referred to in 
paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a 
disguised restriction on the free movement of capital and payments as defined in 
Article 63. 
Case-law of the Court of Justice 
48. The judgment of the Court in Case C-303/07, Aberdeen Property Fininvest Alpha 
Oy, concerned freedom of establishment within the meaning of Article 43 EC 
(now Article 49). By its question, the referring court wished to clarify whether 
Articles 43 and 48 EC and Articles 56 and 58 EC are to be interpreted as meaning 
that, in order to safeguard the fundamental freedoms set out therein, a share 
company or investment fund constituted under Finnish law and a SICAV 
constituted under Luxembourg law must be regarded as comparable, despite the 
fact that a form of company entirely comparable to the SICAV is not recognised 
in Finnish law, having regard, first, to the fact that the SICAV, which is a 
company under Luxembourg law, is not mentioned in the list of companies 
referred to in Article 2(a) of Directive 90/435, with which the Finnish withholding 
tax legislation applicable in the present case is consistent, and, second, to the fact 
that the SICAV is exempt from income tax under the domestic tax legislation of 
the Grand Duchy of Luxembourg. In these circumstances, is it contrary to the 
above articles of the EC Treaty for the Luxembourg-based SICAV as the recipient 
of dividends in Finland not to be exempt from the withholding tax to be paid on 
the dividends? 
49. The Court held at paragraph 50 of its judgment that, in the first place, the 
circumstance that in Finnish law there was no type of company with a legal form 
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identical to that of a SICAV governed by Luxembourg law could not in itself 
justify a difference in treatment, since, as the company law of the Member States 
had not been fully harmonised at Community level, that would deprive the 
freedom of establishment of all effectiveness. 
50. The Court found at paragraph 55 of its judgment that, in those circumstances, the 
differences between a SICAV governed by Luxembourg law and a share company 
governed by Finnish law, relied on by the Finnish and Italian Governments, were 
not sufficient to create an objective distinction with respect to exemption from 
withholding tax on dividends received. Consequently, there was no further need to 
examine to what extent the differences between a SICAV governed by 
Luxembourg law and an investment fund governed by Finnish law, said to exist 
by those governments, were relevant for establishing such an objective difference 
in situation. 
51. The Court further held at paragraph 56 of its judgment that it followed that the 
difference in treatment between non-resident SICAVs and resident share 
companies [Or. 9] with respect to the exemption from withholding tax on 
dividends distributed to them by resident companies constitutes a restriction of 
freedom of establishment, prohibited in principle by Articles 43 EC and 48 EC. 
52. Both in joined Cases C-338/11 to C-347/11, Santander Asset Management, 
concerning French withholding tax, and in Case C-190/12, Emerging Markets 
Series of DFA Investment Trust Company, concerning Polish withholding tax, the 
Court held that withholding tax on dividends in the source country infringed 
Article 63 TFEU, as the foreign investment companies in a comparable situation 
received less favourable tax treatment than domestic investment funds. 
53. However, in Case C-156/17, Köln-Aktienfonds Deka, concerning the refund of 
Dutch dividend tax, the Court held at paragraph 55 of its judgment that national 
legislation which applies without distinction to resident and non-resident operators 
may constitute a restriction on the free movement of capital and that it follows 
from the Court’s case-law that even a differentiation based on objective criteria 
may de facto disadvantage cross-border situations. The Court added at 
paragraph 56 that that is the case where national legislation which applies without 
distinction to resident and non-resident operators reserves a tax advantage in 
situations in which an operator complies with conditions or obligations which are, 
by their nature or in fact, specific to the national market, in such a way that only 
operators present on the national market are capable of complying with those 
conditions or obligations, and non-resident operators which are comparable do not 
generally comply with those conditions or obligations. 
54. The referring court believes that neither the above nor any other judgments of the 
Court provide a direct answer to the question in this case. 
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The need for the preliminary ruling 
55. The Administrative Court is required to decide whether the applicant is to be 
regarded for tax purposes as equivalent to a Finnish investment fund exempt from 
income tax for the tax year 2020, such that it is not liable for tax on rental income 
and capital gains in Finland, or whether it has to pay withholding tax on that 
income. 
56. According to the preliminary decision issued by the Tax Authority, the applicant, 
which is to be regarded for tax purposes as equivalent to a Finnish investment 
fund exempt from income tax for the tax year 2019, cannot be regarded as an 
investment fund exempt from income tax following the entry into force of 
Paragraph 20a of the Law on income tax at the beginning of 2020 and must 
therefore pay withholding tax on its income in Finland. 
57. Interpretation is required in this case to establish whether the national provision in 
Paragraph 20a of the Law on income tax infringes Articles 49, 63 and 65 TFEU, 
as, according to that provision of law, only foreign open-ended investment funds 
constituted by contract are regarded as equivalent to Finnish investment funds 
exempt from income tax, meaning that, now that the law has been amended, 
investment funds in the form of a company like the applicant, for example, [Or. 
10] can no longer be regarded as equivalent to a Finnish tax-exempt investment 
fund. According to the Finnish legislation governing investment funds, investment 
funds must be constituted by contract. 
58. The Administrative Court is not aware of any preliminary ruling of the Court of 
Justice on the interpretation of Articles 49, 63 and 65 TFEU on the matter 
described above. 
59. ‘A’ SCPI and the Tax Recipients Legal Services Unit have been granted a right to 
be heard with a view to requesting a preliminary ruling from the Court of Justice. 
Interim order of the Helsingin hallinto-oikeus (Administrative Court, 
Helsinki, Finland) on a reference to the Court of Justice of the European 
Union for a preliminary ruling 
60. The Administrative Court has decided to stay the proceedings and to request a 
preliminary ruling from the Court of Justice of the European Union pursuant to 
Article 267 of the Treaty on the Functioning of the European Union (TFEU) 
concerning the interpretation of Articles 49, 63 and 65. A preliminary ruling is 
necessary for the resolution of the dispute pending before the Administrative 
Court. 
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Question referred 
Are Articles 49, 63 and 65 TFEU to be interpreted as meaning that they preclude 
national legislation under which only foreign open-ended investment funds 
constituted by contract can be regarded as equivalent to Finnish investment funds 
exempt from income tax, meaning that foreign investment funds established in a 
legal form other than by contract are subject to withholding tax in Finland, even 
though there are otherwise no significant objective differences between their 
situation and that of Finnish investment funds? 
Once it has received a preliminary ruling from the Court of Justice on the question 
set out above, the Administrative Court will give a final decision in the case. 
Appeal 
According to Paragraph 108 of the Oikeudenkäynnistä hallintoasioissa annettu 
laki (Rules of procedure of the administrative courts), this order is not open to 
separate appeal. [Or. 11] 
[not translated] [Or. 12] [not translated]