Finland's negotiations on revised tax treaties with Spain, Portugal and GermanyTax Administration Bulletin, 4/28/2016
The treaty revisions regarding Spain and Germany are presented in Government proposals and adopted by the Finnish Parliament. For the new tax treaties to come into force in January 2017, Spain and Germany must render them effective through their respective national procedures. The revisions of the Finland-Portugal treaty are not yet publicly released because it has not yet been signed. Most importantly, the revisions concern the treatment of pension income from Finnish sources.
Tax treaty with Spain
Under the current treaty, pensions to residents of Spain are only taxed in Finland in the case of former public-service employees. The revised clauses allow for Finnish taxation of other types of pensions, too. In these circumstances, the country that eliminates double taxation is, by way of exception, the source country of the pension income. This means that the tax paid in Spain on a Finnish pension to a Spanish resident is deducted from the Finnish tax on that income.
The new tax treaty has a transition period of three years. During these three years, the clauses of the current treaty continue to apply when the pension income is related to work in the private sector (e.g. under the Finnish TyEL law that governs pension contracts). A condition, however, is that Spain is taxing the pension. Where a type of pension that Spain treats as tax-exempt income is concerned, taxation is carried out as agreed in the new treaty without a transition period. The transition is not applied on any pension income that is not connected with an individual's past employment for an employer (e.g. if work is self-employed type, under the Finnish YEL and MYEL laws that govern farmers and the self-employed, and e.g. when individual retirement account contracts are the reason for the pension income).
As had been agreed by the current tax treaty, the Finnish Tax Administration collects no tax on the rental income received by people who reside in Spain and rent out an apartment/flat located in Finland. The revised clauses allow for Finnish taxation.
Tax treaty with Germany
Under the current treaty between Finland and Germany, residents of Germany do not pay Finnish tax on pension income received by virtue of a voluntary retirement account. The revised clauses allow for Finnish taxation.
Currently, a Finnish resident receiving German-sourced pension only has to pay a Finnish health insurance contribution when the pension contract is made under the German social security legislation. So far, the pension income based on other than social security laws and past careers with the public service are taxed by Finland only. The revisions provide that Finnish taxation will continue, but any tax that is chargeable in Germany on the pension is credited to the taxpayer in the final assessment.
Tax treaty with Portugal
The negotiations conducted with Portugal are completed and agreement has also been reached on revisions to the Finland-Portugal tax treaty. The current treaty is from 1970 and resembles the Finland-Spain treaty. The revisions of the Finland-Portugal treaty are not yet publicly released because it has not yet been signed. Probably the treatment of pension income from Finnish sources is going to be different.
- Government proposal texts in Finnish and Swedish: Espanjan verosopimuksesta: HE 5/2016 (finlex.fi)
- Government proposal texts in Finnish and Swedish: Saksan verosopimuksesta: HE 17/2016 (finlex.fi)
- Website of the Ministry of Finance: Suomen ja Espanjan välinen verosopimus allekirjoitettiin (vm.fi)
- Website of the Ministry of Finance: Suomen ja Portugalin välisestä verosopimuksesta neuvottelutulos (vm.fi)
- Treaties in force: Verosopimukset (vm.fi)
Further information on tax.fi:
- Tax treaties in force
- Eläketulojen verotus kansainvälisissä tilanteissa (Finnish; Swedish)
- Statement of the Tax Administration (Finnish; Swedish) Verohallinnon kannanotto erityisesti Portugalissa asuvien eläketulojen verotuksesta Suomessa: Portugalissa asuvan Suomesta saaman eläkkeen verotus