No longer tax at source on royalties to Estonia

Tax Administration Bulletin, 10/3/2016

The tax agreement between Finland and Estonia includes a most-favoured nation clause. Therefore, as of 1 January 2016, royalties paid to Estonia are no longer taxed at source.

Finland and Estonia have an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital (Ministry of Finance Treaty Series 96/1993). According to Article 12 of the Agreement, it has been possible to tax royalties in the Contracting State from which they derive.

Estonia has informed that one of their tax treaties with a third state has a narrower definition of royalty. That treaty also stipulates that royalties be taxed only in the recipient’s country of residence. Because of the most-favoured nation clause in our tax agreement with Estonia, the same rules automatically apply to cases involving Finland and Estonia.

The Ministry of Finance made an announcement about the matter on 18 August 2016 (55/2016 in the treaty series). According to the announcement, sections 2 and 3 of article 12 in the tax agreement are substituted by the following clauses:

  • Royal ty is not subject to tax in the Contracting State from which it is derived (paragraph 2).
  • The term “royalties” as used in this Article 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 (paragraph 3).

If tax at source has been collected in spite of the new clauses, the payer can correct their Periodic tax return or the recipient apply for refund of tax at source.

Application for refund of Finnish withholding tax (non-individual)