Nordic Agreement Concerning the Collection and Transfer of Tax

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish languages.

This guide discusses the Nordic Agreement Concerning the Collection and Transfer of Tax, also known as the TREKK Treaty. The guide explains the prerequisites for transferring tax between two Nordic countries and outlines situations in which an individual's tax may be transferred. The guide also contains instructions on reporting employment within the Nordic countries.

1 Foreword

The Nordic Agreement Concerning the Collection and Transfer of Tax is based on Article 20 of the Nordic Convention on Mutual Administrative Assistance in Tax Matters (Treaty No 37/1991). The agreement is also known as the TREKK Treaty after the Danish word 'trække' ('withhold'). The current TREKK Treaty (Treaty No 97/1997) entered into force on 1 January 1998. It applies to Denmark, the self-governing Faeroe Islands as well as Finland, Iceland, Norway and Sweden. Greenland is not party to the agreement.

The agreement governs the transfer of tax between the Nordic countries and determines the country in which tax is withheld or prepayments collected. The tax transfer procedure applies to situations in which a taxpayer's income has been taxed in one signatory state and the tax is then transferred to another country at that country's request. The transferred tax counts as a payment of tax levied in the receiving country. The objectives of tax transfers are to ensure that the final tax on income is paid to the correct signatory state and to avoid double taxation. Tax can be transferred in connection with prepayments, tax assessment or corrective assessment. The TREKK Treaty is designed to prevent situations in which a taxpayer is given a tax refund on the basis of income that is taxable in another signatory state.

The TREKK Treaty applies, for example, to situations in which a Nordic employer pays wages for work performed in another Nordic country. The objective of the agreement is to prevent taxpayers from having to make prepayments, for tax due on such income, to more than one Nordic country. The agreement also aims to ensure that such wages do not escape prepayments altogether, but that prepayments are always collected either in the worker's home country or in the country in which they work. 'Home country' refers to a taxpayer's country of residence as defined in the Nordic Income Tax Treaty.

In this guide, prepayments refer to both tax withheld by the payer and prepayments made by workers themselves. Taxpayers may need to make prepayments if, for example, their employer does not have a permanent establishment and is therefore not liable to withhold tax on wages paid in another Nordic country.

2 Overview of the TREKK Treaty

2.1 Scope of application

The TREKK Treaty applies to income tax governed by the Nordic Income Tax Treaty (Treaty No 26/1997). However, the agreement can only be applied to tax levied on specific types of income. The agreement does not apply, for example, to tax at source charged on interest earnings or employees' and employers' social insurance contributions.

The TREKK Treaty primarily applies to wages. The agreement also applies to pensions and other social welfare benefits, such as sickness allowance. The agreement applies to pensions regardless of whether they are earnings or capital income. Whether the pension is statutory or voluntary is also irrelevant. In addition to the above, the agreement covers business and trade income as well as remuneration for small-scale work that is taxed as the recipient's personal income.

2.2 Competent authority

Tax transfers and correspondence relating to the TREKK Treaty constitute international mutual administrative assistance between Nordic tax authorities. The parties responsible for providing administrative assistance are the competent authorities in each country.

In Finland, the competent authority under the TREKK Treaty is the Helsinki Area Tax Office. It takes care of correspondence relating to tax transfers, reporting to foreign authorities and taxation. The competent authority is also responsible for sending requests or offers relating to tax transfers to the competent authorities of other countries and for processing notifications arriving from other countries, regardless of the home town of the taxpayer in question.

The competent authority's tax collection duties in the context of Nordic administrative assistance have been delegated to the Tax Collection and Recovery Unit of Western Finland. The Tax Collection and Recovery Unit of Western Finland is also responsible for transferring tax funds under the TREKK Treaty in practice.

2.3 Exchange of information and NT forms

In order to implement the agreement, the competent authorities of the Nordic countries have an obligation to exchange information from the prepayment stage onwards. This is why forms NT1 and NT2 have been drawn up for employers to use in the context of work between the Nordic countries. The employer sends the forms to the tax authorities, who forward them to the competent authority of the country in question. The authorities also have their own forms for offering tax transfers to other countries, or requesting transfers from them.

No prepayments of tax need to be deducted from workers' wages in the country in which they work if the tax authorities of that country have been given an NT1 form signed by the Finnish authorities, guaranteeing that tax is being withheld in Finland. The NT2 form is used to notify tax authorities that no tax is being withheld from a worker's wages apart from a minimum social insurance contribution, where applicable. No tax is withheld if the so-called six-month rule applies or if a worker's tax card is amended and their wages are exempted from tax pursuant to tax treaty provisions.

Forms for employers and instructions for filling them in can be found at vero.fi/en/forms. More information about the forms is given in Chapter 3 of this guide. Employers' notification obligations and correspondence between the authorities do not remove taxpayers' responsibility for declaring their own income in the country in which they work or live. Any income from abroad must also be declared in tax returns filed in the country of residence.

2.4 Tax transfers and Finland's internal laws

Finland's internal laws include provisions that factor in the transfer of taxes pursuant to the provisions of the TREKK Treaty. Pursuant to Section 34 of the Finnish Tax Assessment Procedure Act, prepayments transferred from another country to Finland are used towards tax levied during the tax year in question and prepayments transferred from Finland to another country are not. In addition, any tax transferred from another country to Finland pursuant to Section 60 of the Tax Assessment Procedure Act is deducted from the amount of tax levied in Finland in connection with corrective assessment or re-assessment following an appellate authority's decision, if the transfer took place before the adjustment. Section 59 of the Finnish Tax Collection Act lists the categories of tax revenue that can be transferred from Finland to other countries.

These provisions on tax transfers contained in Finland's internal tax laws and the TREKK Treaty make tax paid in another Nordic country partially comparable to tax paid in Finland. Taxpayers can be given credit for tax transferred from another Nordic country when tax is levied on them in Finland. That is why, according to the agreement, the country that receives a tax transfer cannot charge interest on the transferred amount. This prevents taxpayers from having to pay interest on back taxes for tax payments made initially in another Nordic country. On the other hand, taxpayers are not entitled to interest on refunds from the country that transfers the tax.

3 Prepayments based on wages and employers' forms

3.1 When can the country in which a taxpayer works demand prepayments?

Pursuant to the TREKK Treaty, a country in which a taxpayer from another Nordic country works for an employer that is based in the taxpayer's country of residence can demand that the taxpayer make prepayments, if the country in which the work is performed also has the right to tax the worker's wages on the basis of the final assessment. The right to tax income is determined on the basis of the Nordic Income Tax Treaty. In other words, the country in which a taxpayer works can demand prepayments if one or more of the following conditions are satisfied:

• The worker spends more than 183 days during a consecutive period of 12 months in the country in which they work in one or more stretches.
• The worker's wages are paid by the employer's permanent establishment in the country in which the work is performed.
• The worker is a leased employee.
• The work relates to a hydrocarbon deposit as referred to in Article 21(7) of the Nordic Income Tax Treaty and lasts for more than 30 days.

If an employer posts workers to another country so that the country in which the work is performed has the right to tax the workers' wages, the tax authorities of that country are not always able to obtain information about the work solely on the basis of their own taxation and registration system. The TREKK Treaty stipulates that a worker's country of residence must notify the country in which they work of the beginning of the work, in order to ensure communication between the two countries and timely prepayments.

If prepayments need to be made in the country in which a taxpayer works, their country of residence cannot demand prepayments. If the tax authorities of the country in which a taxpayer works demand prepayments on the basis that the worker is a leased employee, for example, they must notify the tax authorities of the worker's country of residence of this, using a correspondence form. Once such notification has been received, the worker's country of residence can no longer demand prepayments on the wages.

3.2 NT1 form: tax withheld in the country of residence

If a Nordic employer posts its employees to another Nordic country so that the country in which the work is performed does not have the right to tax the workers' wages, tax on the wages is withheld in the workers' country of residence. The TREKK Treaty stipulates that proof of tax having been withheld in a worker's country of residence must be presented to the country in which the work is performed, if necessary. That is why employers need to notify the tax authorities in their workers' country of residence of such work, using the NT1 form.

In Finland, the NT1 form (VEROH 6134a) is available on the vero.fi website. The employer must fill in the form as soon as work begins in another Nordic country and send it to the Finnish Tax Administration. The Finnish Tax Administration signs the form and forwards it to the competent authority of the Nordic country in question. The Finnish Tax Administration returns two copies of the signed form to the employer, one of which must be given to the worker.

If necessary, the worker presents the form to the tax authorities of the country in which they work. The country in which the work is performed cannot demand prepayments after seeing the form. In practice, the NT1 form does not usually need to be presented in the country in which work is performed, as the tax authorities of that country receive the information from the tax authorities of the worker's country of residence, or are able to verify otherwise that they do not have the right to tax the worker's wages.

The country in which work is being performed can override the protection afforded by an NT1 form, by claiming that a worker is a leased employee. Pursuant to the TREKK Treaty, the country in which work is being performed must notify the worker's country of residence if prepayments of tax need to be made in the country of employment on the basis of the worker being a leased employee. The worker's country of residence cannot demand prepayments if they receive such a notification. However, such situations often only come to light when the taxpayer contacts the tax authorities, or the authorities of the country in which they work request a tax transfer.

3.3 NT2 form: no tax withheld in the country of residence

3.3.1 Working in another Nordic country

If a resident of Finland works for a Finnish employer in another Nordic country, so that their wages are subject to the six-month rule laid down in Section 77 of the Finnish Income Tax Act, no tax is payable on their wages in Finland. As no tax is withheld on tax-free earnings, the employer can choose to apply the six-month rule and forgo withholding tax on the worker's wages, without any amendments to the worker's tax card. However, the employer has an obligation to withhold social insurance contributions from the worker's wages, even if the wages are exempt from tax on the basis of the six-month rule. The relevant provisions can be found in Chapter 18, Section 29(2) of the Finnish Health Insurance Act (1224/2004). The amount withheld in this manner is called a minimum social insurance contribution.

If the six-month rule does not apply but the country in which the work is performed has the right to tax the worker's wages, the employer cannot choose not to withhold tax in Finland. The worker must request a new tax card to prevent the withholding of tax, or to lower the amount.

The employer can therefore lower the amount of tax withheld on the worker's wages either on the basis of the six-month rule or the worker's tax card, which eliminates double taxation. In both scenarios, the employer must fill in an NT2 form (VEROH 5052a) to notify the Finnish Tax Administration that no tax is to be withheld.

The notification must be filed within one month of the first occasion on which tax is not withheld. Once the employer has filled in and sent the from to the Finnish Tax Administration, Finland's competent authority will stamp and sign the form and send it to the competent authority of the relevant Nordic country. The authorities of the country in which the work is performed can then take steps to request prepayments on the basis of the NT2 form. The Finnish Tax Administration's guide on taxation of income earned abroad explains employers' responsibilities, in situations where workers are posted abroad, in more detail.

3.3.2 Working in Finland

An employer based in another Nordic country can post a worker to Finland so that prepayments on their wages are made to Finland. In such cases, the employer draws up a notification of work being performed abroad by filling in an NT2 form in the worker's country of residence, and the competent authority of the worker's country of residence forwards the form to the Helsinki Area Tax Office in Finland. If the employer does not have a permanent establishment in Finland or an agent who takes care of payroll, the employer has no obligation to withhold tax in Finland. The worker therefore needs to set up prepayments themselves. If the employer has a permanent establishment in Finland, they also have an obligation to withhold tax in Finland. In such cases, the worker usually needs to request a tax card for their wages.

Even if Finland had the right to tax the wages of a worker performing work in Finland on the basis of the Nordic Income Tax Treaty, the wages of a non-resident worker are tax-free unless they count as income received from Finland as referred to in Section 10 of the Finnish Income Tax Act. This is another reason why foreign workers should give as comprehensive an account of their circumstances as possible for the purposes of deciding on prepayments.

An employer based in another Nordic country may continue to withhold tax on wages paid to workers posted to Finland and pay it to the worker's country of residence. In these situations, the competent authority of the worker's country of residence sends the NT1 form received from the employer to the Helsinki Area Tax Office in Finland. The correctness of taxation is checked in Finland. If the TREKK Treaty gives Finland, as the country in which work is performed, the right to demand prepayments, the Helsinki Area Tax Office notifies the authorities of the worker's country of residence of the new circumstances, and the fact that tax needs to be paid to the country in which the work is performed. The worker's prepayments are revised at the same time.

3.4 Changes to the right of the country in which work is performed to tax wages while the work is ongoing

If an employer originally filled in an NT1 form stating that tax will be withheld in a worker's country of residence but withholding tax in the worker's country of residence is subsequently stopped, the employer must fill in an NT2 form and submit it to the tax authorities of their country of residence. The new notification overrules the information provided previously in the NT1 form. In such situations, the employer must not refund the worker for any tax already withheld.

3.5 Mutual agreement if two countries demand prepayments

If prepayments have been charged on the same income in two signatory states, the country that was not entitled to demand prepayments must return any prepayments made there. The competent authority of the other country must be notified before the refund is paid, and it can demand that tax be transferred to that country, if necessary.

A worker's country of residence and the country in which they work can both interpret their national tax laws and the Nordic Tax Treaty to mean that they have the right to tax the worker's wages. In such an event, the TREKK Treaty determines which country has the right to demand prepayments. If the tax authorities of a signatory state that must, pursuant to the provisions of the agreement, forego demanding prepayments, refuse to accept a decision made by the tax authorities of another signatory state, the dispute is resolved by means of a mutual agreement between the competent authorities.

If the country in which work is performed has demanded prepayments on the basis of one of the criteria listed in Section 3.1 above, the worker's country of residence cannot demand prepayments until the dispute has been resolved. The country in which the work is being performed cannot demand prepayments until the dispute has been resolved if the worker's country of residence has sent an NT1 form, the contract is for no more than 183 days of work during a 12-month period and the employer is based in the worker's country of residence.

3.6 Cross-border commuters

The tax collection provisions of the TREKK Treaty that determine which country can demand prepayments (Articles 3–6) do not apply to cross-border commuters as referred to in the Nordic Income Tax Treaty. However, cross-border commuters are governed by the provisions of the TREKK Treaty that concern tax transfers, which means that tax levied on cross-border commuters can also be transferred at various stages of taxation. More information about cross-border commuters is available in the Finnish Tax Administration's guide on the taxation of cross-border commuters.

4 Business income from another Nordic country

As a rule, the Nordic Income Tax Treaty gives the right to tax business income to the country in which the company is domiciled, if the company does not have a permanent establishment in another Nordic country in which it is doing business. The country in which a self-employed person performs work can also tax the worker if they spend more than 183 days of any 12-month period in that country. Unlike the case of wages, the TREKK Treaty never prevents a worker's country of residence from demanding prepayments on business income. In addition, prepayments are not transferred between countries; instead, the agreement only covers final income tax in the context of business.

Income tax paid on earnings or capital income from a natural person's business can be transferred under the TREKK Treaty. The agreement also applies to corporate income tax and tax at source on remuneration for work.

If a Finnish company has business activities in another Nordic country without making prepayments there, and the company is later found to have had a permanent establishment in that country, the country can request that tax be transferred there from Finland. When transferring final tax, Finland can limit the transferred amount according to the tax refund given to the company (see Section 5.4). If the existence of a permanent establishment is discovered retrospectively, the tax paid to another Nordic country is only taken into account in the final assessment or, for example, in a corrective assessment made on the basis of a tax transfer request. Transferable tax refunds are likely to materialise in such circumstances.

The earnings of foreign businesses operating in Finland are usually considered to constitute remuneration for work paid to a non-resident. As a rule, Finnish payers need to withhold 13 % or, in the case of self-employed persons, 35 % as tax at source of any remuneration paid for work, unless the foreign business has been entered into the Finnish prepayment register. If Finland does not have the right to tax the business income of a company domiciled in another Nordic country, the company can request a tax card in advance to release payers from responsibility to withhold tax. Companies can also request a refund of any tax at source paid from the Finnish Tax Administration retrospectively. In such cases, Finland has an obligation to initiate a tax transfer procedure under the TREKK Treaty.

5 Tax transfers

5.1 Transferring tax from Finland to another Nordic country

The procedure for transferring tax from Finland to another Nordic country can be initiated either by Finland, or the other Nordic country. If the other country has the right to tax a worker's income and prepayments have been made in Finland, the tax can be transferred. If a tax treaty gives Finland the right to tax the worker's income, or there is no transferable tax, no tax transfer takes place. Tax can be transferred in connection with prepayments, tax assessment or corrective assessment. If prepayments are transferred to another Nordic country, the taxpayer does not get credit for them in Finland. In these circumstances, an official decision is made to transfer the prepayments to the other country.

If the other country refuses Finland's offer to transfer the tax, the taxpayer is given credit for the prepayments in Finland or paid a refund. If the other country decides that no tax is due there, the Finnish Tax Administration checks the grounds for the refusal and the correctness of the Finnish tax assessment. Pursuant to Article 26 of the Nordic Income Tax Treaty, Finland can, in some circumstances, tax income that is tax-free in another country.

5.2 Transferring tax from another Nordic country to Finland

If it transpires, in connection with tax assessment or otherwise, that tax has been withheld in another Nordic country but Finland has the right to tax the income in question, a tax transfer procedure is initiated. The procedure can be initiated either by the Finnish tax authorities or the tax authorities of the other Nordic country in question. If tax is transferred to Finland, the taxpayer is given credit for the transferred amount as if the tax withheld or prepayments had been accrued in Finland. No interest is added to the amount of tax transferred to Finland in Finland. Any tax or prepayments transferred to Finland from another country that are not used towards a taxpayer's tax liability are refunded to the taxpayer.

Only the amount of tax needed in Finland is requested. If Finland only requests the transfer of some of the tax paid in another country or if there are no grounds for requesting a transfer, the taxpayer must apply to the authorities of the other country for a refund of any excess or mistakenly paid amounts.

5.3 Tax transfers at various stages of taxation in Finland

5.3.1 Transferring prepayments

There are practical reasons why prepayments cannot always be made in the country that is ultimately found to have the right to tax a worker's income. Employers who post workers to another Nordic country often initially withhold tax in the workers' country of residence, as they cannot know for sure whether a worker will end up staying in the country in which they work for more than 183 days. When work begins, it is often impossible to know whether the employer will end up having a permanent establishment in the country in which the work is being performed, or whether the authorities of that country will consider the workers to be leased employees. Another possibility is that prepayments are made in the country in which the work is performed, but it later transpires that only the worker's country of residence has the right to tax their income if, for example, the worker ends up spending less time in the country in which they work than originally intended.

If prepayments have been collected from a worker in another Nordic country but a tax treaty gives Finland the right to tax the worker's income, an assessment can be made, even at the prepayment stage, as to whether the prepayments to be transferred from the other country will be enough to cover the worker's tax liability in Finland. However, Finland cannot demand prepayments on the basis of the same income for which a worker has already made prepayments in another country. That is why making any missing prepayments in order to avoid back taxes is the taxpayer's responsibility. A taxpayer can, for example, ask the person who pays their wages to withhold more tax than indicated on their tax card.

Tax withheld from a worker's wages pursuant to the Finnish Prepayment Act, or prepayments made by them otherwise in Finland, can be transferred to another Nordic country on the basis of the TREKK Treaty before the worker's taxation is confirmed. The amount transferred to the other country is deducted from the prepayments for which the taxpayer is given credit.

Prepayments can be transferred from Finland to another Nordic country as long as the taxpayer could be given credit for them in Finland on the basis of the Finnish Tax Assessment Procedure Act. In other words, prepayments can also be transferred if a worker's employer has withheld tax on their wages but failed to declare this or pay the amount to the tax authorities. In such circumstances, the amount can only be transferred if there is reliable proof that tax has been withheld.

Pursuant to Section 22 of the Finnish Prepayment Act, tax withheld from a worker's wages can be refunded to them if the tax was withheld from income that is considered tax-free in Finland. A refund can be paid, for example, if a worker's wages are tax-free on the basis of the six-month rule. However, tax cannot be refunded on the basis of a taxpayer having worked in another Nordic country, until the country in question has been sent a tax transfer offer.

5.3.2 Transferring tax refunds

After taxation has been confirmed, tax refunds as referred to in Section 50 of the Finnish Tax Assessment Procedure Act can be transferred from Finland to another Nordic country if, for example, the exemption method or the six-month rule has been applied to a taxpayer's wages but prepayments have not been transferred. This may be the case if a tax transfer request from the other country in question only arrives in Finland after the worker's taxation has been confirmed. If the taxpayer has already been paid a refund, no transfer can be made.

If the exemption method or the six-month rule is only applied to the taxation of wages when a tax decision is reviewed, any refund arising from the review as referred to in Section 76 of the Finnish Tax Assessment Procedure Act can be transferred to another Nordic country.

5.3.3 Transferring tax at source

Finland can also offer to refund tax at source, as referred to in Section 11 of the Finnish Act on the Taxation of Non-residents, for transfer to another Nordic country. Refunds may need to be paid if, for example, more tax at source has been collected than permitted under the Nordic Income Tax Treaty. If tax at source was collected on a non-resident's wages but all of the work was performed in another Nordic country, internal laws alone will prevent Finland from taxing the wages. Tax at source can be refunded either on the basis of a request, or on the authorities' own initiative. Pursuant to Section 11(3) of the Act, tax at source that is transferred to another country is not refunded to the taxpayer.

5.3.4 Mutual agreement procedure

The Nordic Income Tax Treaty also contains provisions on a mutual agreement procedure. The tax treaty gives taxpayers the right to challenge the double taxation of their income through the competent authorities of the countries in question. The mutual agreement procedure is usually the last resort for eliminating double taxation, after the appeals procedure has first been exhausted.

If a taxpayer has paid tax in Finland but the right to tax their income is found to belong to another Nordic country during the course of the agreement procedure, a tax transfer procedure is initiated on the basis of Section 59(4) of the Finnish Tax Collection Act.

5.4 Limitations and deadlines for tax transfers

The amount of tax transferred at the prepayment stage must not exceed the prepayments that should have been made on the income in the country requesting the transfer. In addition, the amount transferred cannot exceed the amount of prepayments made in the country receiving the transfer request.

At the prepayment stage, transfer requests to the authorities of other Nordic countries must arrive by

• 1 February of the year following the year during which the income was earned in the case of Denmark and the Faeroe Islands,
• 1 April of the year following the year during which the income was earned in the case of Norway, and
• 31 May of the year following the year during which the income was earned in the case of Iceland, Sweden and Finland.

After these deadlines, the transferring country has the right to spend any prepayments accumulated there to cover its own income tax from the tax year in question first. In other words, countries can limit the amount transferred according to the refund received by the taxpayer in question.

If a tax transfer proposal is only made three years after the end of the year during which the income in question was earned, the transferring country can also spend the tax revenue to cover other tax claims before the transfer. At this stage, all domestic taxes and charges have priority over the transfer regardless of the tax year.

5.4.1 Refunds

If a taxpayer is due a refund on the tax paid for a certain income in one of the Nordic countries and another Nordic country makes a claim for the tax, such as imposing back taxes on the same income, the refund must be postponed. The postponement continues until the other country requests a transfer according to the deadlines given in Section 5.4.

If excess tax paid on income earned in one Nordic country needs to be refunded in another Nordic country and the country in question has not requested a transfer, that country must be notified of the refund before it is paid. If the notifying country does not receive a transfer request within 30 days of sending the notice, the refund can be paid. The same applies to situations where a taxpayer requests a tax refund.

The 30-day deadline can be extended if necessary, as it is not always possible for the other country to process the notice that quickly. The tax authorities can agree on the postponement of the refund payment with the taxpayer in question. This helps to avoid a situation where the taxpayer would need to pay the tax to the other country themselves. This would also allow the other country to charge interest on the late tax. Moreover, tax remaining unpaid in another country might need to be collected from a taxpayer in Finland if the other country requested official assistance for collection from Finland on the basis of the Nordic Convention on Mutual Administrative Assistance in Tax Matters.

5.5 Tax transfers and exchange rates

Transfers of tax revenue from Finland to other Nordic countries are made on the basis of the latest euro reference rates determined by the European Central Bank. Tax transferred by foreign authorities to Finland is entered into the Finnish Tax Administration's account in euros. The taxpayer in question is given credit for the transferred amount according to the euro amount recorded in the Finnish Tax Administration's account. The conversion of sums paid to Finland is performed by the bank that conveys the payment.