Tax treaty benefits at source on dividends paid to nominee-registered shares

Tax treaty benefits can be granted on dividends paid to a nominee-registered share, when the dividend beneficiary has been identified and their eligibility for tax treaty benefits verified (Tax at Source Act, § 10).

These instructions and frequently asked questions are for publicly listed companies that pay dividends and Authorised Intermediaries when investigating and identifying dividend beneficiaries.

Requirements for granting tax treaty benefits

Tax treaty benefits can be granted when paying dividends, if the dividend payor or an Authorised Intermediary (AI) has

  • taken reasonable measures to determine the dividend beneficiary's country of residence, and
  • verified that the tax treaty provisions on dividends can be applied to the beneficiary.

As a reasonable measure to determine the beneficiary's country of residence can be deemed a tax at source card, a certificate of residence or an Investor Self-Declaration.

Tax at source card and a certificate of residence

A tax at source card or a certificate residence indicates the dividend beneficiary's country of residence. In order to grant tax treaty benefits at source, the payor or the Authorised Intermediary must also verify per dividend payment that the requirements for applying the tax treaty are fulfilled.

Investor Self-Declaration

An Investor Self-Declaration (ISD) is a dividend beneficiary's declaration of their country of residence for tax purposes and the applicability of the tax treaty. The declaration is an Investor Self-Declaration in accordance with the OECD's TRACE system.

The dividend beneficiary's responsibility is to provide the information and certifications required in the ISD. Tax treaty benefits can be granted based on an ISD, if an Authorised Intermediary or the payor has verified the reliability of the ISD.

The Tax Administration has issued a decision on the contents and period of validity of the Investor-Self Declaration, and the procedure with which its reliability is verified (ISD decision).

Frequently asked questions concerning investigating and identifying the dividend beneficiary

Contents of the ISD

Example:

  • The AI has obtained a Self-Certification in accordance with the CRS standard from a dividend beneficiary who is a natural person. In the Self-Certification, the beneficiary has certified that their country of residence for tax purposes is Sweden and that they do not have any other country of tax residence. The beneficiary has also provided the AI with the information required under the AML/KYC (Anti Money Laundering/Know Your Customer) legislation.
  • The AI has received the following information of the dividend beneficiary regarding the custodial account in which the shares are being held: country of residence for tax purposes, tax identification number issued by the country of residence, name, date of birth and address in the country of residence.
  • While providing the above referred information, the beneficiary has verified the information to be correct in the manner required by the common information exchange standards (FATCA, CRS/DAC2).
  • Attached to the contractual agreement made between the AI and the dividend beneficiary, the beneficiary has given a certification that they are the beneficial owner of the custodial account. Furthermore, the AI has verified that the certification is applicable for relief of taxation at source of dividend income from Finland in accordance with the tax treaty between Finland and Sweden.
  • The contractual agreements between the AI and dividend beneficiary do not allow share lending or other agreements that could affect the interpretation of tax treaty with regard to the shares held in the custodial account.
  • The beneficiary has undertaken to inform the AI of changes in their circumstances.

Answer:

  • The AI can apply the previously collected information and certifications as an ISD. An ISD does not have a format requirement; instead, it is essential that the AI obtains the information and certifications required under the ISD decision.
  • In the situation described in the example, the information and certifications that the dividend beneficiary has provided fulfil the content requirements as referred to in the ISD decision (ISD decision, § 1). Therefore, the AI does not need to collect a separate ISD from the dividend beneficiary. Instead, it is sufficient that the AI verifies that the information and certification it has received along with the agreements cover the content requirements in accordance with the ISD decision. However, the AI must receive from the beneficiary an authorization to submit the information to the Tax Administration, if other applicable legislation requires this kind of authorization (ISD decision, § 1(4)).

Example:

  • The dividend beneficiary has provided the AI with a Self-Certification in accordance with the CRS standard. In the Self-Certification, the beneficiary has certified that their country of residence for tax purposes is Denmark and that they do not have any other country of tax residence. The beneficiary has also provided the AI with the information required under the AML/KYC legislation.
  • The AI has received the following information of the dividend beneficiary regarding the custodial account in which the shares are being held: country of residence for tax purposes, tax identification number issued by the country of residence, name, address in the country of residence, legal form and country of registration or the country, under whose laws it is established.
  • While providing the above referred information, the beneficiary has verified the information to be correct in the manner required by the common information exchange standards (FATCA, CRS/DAC2).
  • Attached to the contractual agreement made between the AI and the dividend beneficiary, the beneficiary has given a certification that they are the beneficial owner of the custodial account.
  • The beneficiary is a limited company registered in Denmark and established under its laws. The beneficiary does not have permanent establishments outside Denmark.
  • The beneficiary has undertaken to inform the AI of changes in their circumstances.

Answer

  • The information that the dividend beneficiary has provided fulfil the information required under the ISD decision (ISD decision, § 1(1))
  • The certifications that the dividend beneficiary has provided do not cover all the certifications in accordance with the ISD decision (ISD decision, § 1(2)). Additionally, the dividend beneficiary must certify that they are the beneficial owner of the dividend as referred to in the tax treaty between their country of residence and Finland, and that they meet the criteria for tax at source benefits of the applicable tax treaty with respect to dividends paid to shares that are held in the custodial account in question.
  • If the dividend beneficiary claims a tax rate lower than the general tax at source rate in the tax treaty to be applied, they must also specify the applicable tax rate, certify that they are eligible for the tax treaty benefit in question, and specify the grounds for their claim (ISD decision, § 1(3)).
  • The AI must also receive from the beneficiary an authorization to submit the information to the Tax Administration, if other applicable legislation requires this kind of authorization (ISD decision, § 1(4)).

Validity period of the ISD

  • The ISD is valid until the end of the year it is signed and the following five years, unless there is a change in the dividend beneficiary's circumstances that affects the reliability of the ISD.
  • The validity period of the ISD, that the AI has verified to be reliable, is counted from the moment when the dividend beneficiary has provided the information and certifications in question and certified them to be correct.
  • If the dividend beneficiary certifies the information and the certifications it has previously provided to be correct in 2021 and certifies their applicability as an ISD, the validity period is counted from the moment the dividend beneficiary has provided this latest certification.

 

Example:

The dividend beneficiary has signed the contractual agreement concerning the custodial account and provided the information required under AML/KYC legislation in March 2015, and provided a Self-Certification in accordance with the CRS standard in February 2016. In addition to the previously provided information, the dividend beneficiary has on the 29 May 2021 provided the required certifications and certified the previously provided information to be still correct. The AI verifies the reliability of the ISD in the manner required by the ISD decision.

Answer:

The ISD is valid no more than the year it is signed and the following five years. The validity period of the ISD begins from 29 May 2021 and ends on 31 December 2026, unless there is a change in the dividend beneficiary's circumstances that affects the reliability of the ISD.

Yes, the dividend payment can be corrected during the payment year, if after the dividend payment the AI receives a reliable explanation based on which the tax may be withheld according to a tax rate lower than was originally applied (§ 10(2), Tax at Source Act). The amount of tax withheld from the dividend can be corrected based on the ISD, if the dividend beneficiary has certified that the ISD also applies to the dividend in question and the AI has verified the reliability of the ISD also concerning the dividend payment in question.

Verifying reliability of the ISD

  • The ISD can not be deemed reliable without a further clarification, if the shares were acquired no more than 30 days before the dividend payment.
  • The shareholder who owns the shares on the record date, that is decided in the dividend decision, has the right to the dividend. Therefore, the time period of 30 days is counted from the record date of the dividend payment.
  • In the situation described in the example, the AI must obtain a further clarification from dividend beneficiary A ensuring the reliability of the ISD, because the dividend beneficiary has bought the shares less than 30 days before the record date.

 

  • If the dividend beneficiary's new address is within the country of residence referred to in the original ISD and there are no other changes in the dividend beneficiary's circumstances, the original ISD that is completed with the new address can still be deemed reliable.
  • If the dividend beneficiary's new address is outside the country of residence referred to in the original ISD, the ISD can not be deemed reliable. Instead, the AI must request a new ISD from the dividend beneficiary.

Certificate of residence

Example:

  • The AI shows that it has received the following information of the dividend beneficiary regarding the custodial account in which the shares are being held: country of residence for tax purposes, tax identification number issued by the country of residence, name and date of birth. The AI receives the up-to-date address information from a register maintained by an authority.
  • The AI shows that the contractual agreements between the AI and dividend beneficiary do not allow share lending or other agreements that could affect the interpretation of tax treaty with regard to the shares held in the custodial account.
  • Attached to the contractual agreement made between the AI and the dividend beneficiary, the beneficiary has given a certification that they are the beneficial owner of the custodial account.
  • Before the dividend payment, the AI has verified that the dividend beneficiary's country of residence is Sweden.
  • Furthermore, the AI has verified that the certification is applicable for relief of taxation at source of dividend income from Finland in accordance with the tax treaty between Finland and Sweden.
  • The AI does not know or have reason to know that the information and certifications provided by the dividend beneficiary would be unreliable.
  • On Tax Administration's request, the AI provides a certification of residence issued to the dividend beneficiary by the tax authority of Sweden.

Answer:
The AI is deemed to have taken reasonable measures to determine the dividend beneficiary's country of residence and to verify that the provisions on dividends of an international treaty can be applied to the beneficiary in the manner as required in § 10 of the Tax at Source Act.