International exchange of information on natural persons between tax authorities
- Date of issue
- 1/12/2023 - Until further notice
This is an unofficial translation. The official instruction is drafted in Finnish (Luonnollisia henkilöitä koskeva kansainvälinen tietojenvaihto veroviranomaisten välillä, record number VH/5629/00.01.00/2022) and Swedish (Internationellt utbyte av information om fysiska personer mellan skattemyndigheterna, record number VH/5629/00.01.00/2022) languages.
These instructions discuss the exchange of tax information on natural persons between the tax authorities of Finland and other countries.
1 General information about international cooperation and exchange of information
The international exchange of information is part of cross-border administrative cooperation between the tax authorities of different countries. Alongside the exchange of information, other means of cooperation include the presence of officials in the administrative agencies of other Member States, participation in administrative investigations, and simultaneous audits. In addition to a valid treaty or a directive or regulation on cooperation, cooperation requires confidential relationships and procedures, as well as reciprocal activities. The aim is to ensure the quality, information security and appropriateness of cooperation by exchanging information internationally using standard forms and file transfer formats, as well as secure communication channels.
The goal of the exchange of information is that the income of an individual or corporate entity operating or having operated in two or more countries is taxed correctly and at the correct amount in each country.
The international exchange of tax information is laid down in EU law and defined in treaties between two or more countries. The legal basis of the exchange of information consists of:
- The Nordic Convention on Mutual Administrative Assistance in Tax Matters (37/1991)
- The Convention on Mutual Administrative Assistance in Tax Matters (21/1995)
- Council Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of value added tax (regulation on administrative cooperation)
- Directive 2010/24/EU concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures
- Directive 2011/16/EU on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC (regulation on administrative cooperation), and the directives on its amendments, extending mandatory automatic exchange of information
- Bilateral agreements, including the FATCA agreement (25/2015)
Bilateral income tax treaties usually also include provisions on the exchange of information. In addition, Finland has entered into certain limited tax treaties, whose primary purpose is to facilitate the exchange of information. The list of Finland’s valid tax treaties at vero.fi also includes these limited tax treaties. Furthermore, Finland has entered into several (roughly 40) information exchange agreements, whose purpose is to enable the exchange of tax information on request. These agreements are available on the OECD website under Tax Information Exchange Agreements (TIEAs).
Information is only exchanged between the competent authorities appointed to the task at hand in each country. The implementing regulation on directive 2011/16/EU on administrative cooperation defines the Finnish Tax Administration as Finland’s competent authority regarding income tax. If an authority authorised or appointed by the Ministry of Finance can be the competent authority in accordance with a certain agreement, the Finnish Tax Administration has been named Finland’s primary competent authority in section 88 of the act on assessment procedure (Verotusmenettelylaki 1558/1995). However, the Ministry of Finance can, in principle, resolve important cases. In the Finnish Tax Administration, the exchange of information is the responsibility of competent officials whose authorisation is indefinite or fixed term.
Usually, any information obtained through the exchange of information can only be used in the management and enforcement of national law. However, the EU directive on administrative cooperation, for example, enables the use of such information for other purposes if the national legislation of the receiving competent authority’s Member State enables this and the competent authority in the sending Member State grants permission for the use of information. Such permission must be granted in situations where the information can be used for similar purposes in the sending competent authority’s Member State.
The international exchange of information can be divided into three groups: automatic, spontaneous, and exchange of information on request. These three main groups are discussed in more detail in the following sections.
2 Automatic exchange of information
Automatic exchange of information means the exchange of information about a large group of taxpayers at the same time, on a regular basis, in a pre-defined format, and without any separate request.
Initiating an automatic exchange of information requires not only a valid treaty, but also a bilateral or multilateral agreement between the competent authorities based on the treaty. The automatic exchange of information between the EU Member States is defined in a directive or regulation.
Regarding the income taxation of natural persons, the Finnish Tax Administration as Finland’s competent authority mainly submits pre-defined information to the competent authorities of each country committed to the exchange of information once a year. Such information concerns all taxpayers who, according to the Finnish Tax Administration’s knowledge, reside in the country in question and have received income in Finland or have certain assets in Finland, including fixed assets or a bank account, during the previous tax year. Correspondingly, information received from abroad concerns income received by individuals residing in Finland from another country or their assets abroad. On certain occasions, the process of automatic exchange of information also includes mass corrections, which means that previously submitted information is changed or removed as incorrect.
In Finland, the information to be submitted is mainly collected from payers or other third-party filers, including financial institutions. Incomes Register reports on payments made to non-resident taxpayers, annual information returns on payments made to non-resident taxpayers, and FATCA, CRS and DAC2 annual information returns play a key role in the collection of information. If required, information available in the Finnish Tax Administration’s registers and information obtained for tax assessments can also be used, including information provided by taxpayers on their tax returns. The Finnish Tax Administration uses this information to collect information about residents of contracting states and generate files to be sent to the countries of residence.
In the automatic exchange of information, the largest and most important information sets about natural persons are related to the situations described in more detail below:
The Multilateral Convention on Mutual Assistance in Tax Matters of the EU and the OECD was prepared in 1988 and was enforced in Finland by a decree on 1 April 1995. The revised convention entered into force in 2011, and it has been signed by more than 140 countries or jurisdictions. Based on the convention, the contractual countries can exchange information and engage in cooperation in tax matters, including giving administrative assistance in the collection of taxes. Information is exchanged on income defined in the OECD Model Tax Convention’s articles on income. No deadline has been set for the exchange of information. Information is usually sent from Finland by the end of June of the year following the tax year.
Since June 2015, all EU Member States have been obligated, based on the directive on administrative cooperation, to automatically send available information on the income from employment, pensions, directors’ fees, the ownership of immovable properties and income received from them, and life insurance products, regarding individuals residing in other Member States. This obligation applied to information on tax year 2014 for the first time. The format of information exchange is based on file transfer formats created by the Member States. Information must be exchanged at least once a year within six months of the end of the Member State’s tax year during which the information became available. Finland sends each tax year’s information by the end of June in the following year, insofar as the information can be collected from reports on non-resident taxpayer received by the end of January regarding the whole calendar year. Corresponding information can be sent to Finland according to various schedules, depending on the information collection schedules of the sending country.
The exchange of financial account information started with the United States in 2015 regarding information about the 2014 tax year based on the FATCA agreement. The exchange of financial account information with the EU Member States, which started in September 2017, is based on directive 2014/107/EU (DAC2) amending the directive on administrative cooperation and that with non-EU countries is based on the Multilateral Competent Authority Agreement (MCAA) or a bilateral agreement. Inside and outside the EU, the information exchange format is based on the CRS standard created by the OECD. Currently, nearly 120 countries across the world participate in the exchange of information.
In Finland, financial institutions submit an annual information return to the Finnish Tax Administration for this purpose, based on which the Finnish Tax Administration generates the files sent for the exchange of financial account information. The information includes among others a taxpayer’s total gross income generated in relation to the interest or dividends paid to an account with a financial institution and funds kept in the account, and the account balance at the end of the year or information about the closing of an account during the year. The data content of FATCA is slightly more limited. The first information exchanged concerned the 2016 tax year. Financial account information is exchanged globally by the end of September in the year following the tax year.
More information about the exchange of financial account information is available (in Finnish) in the Finnish Tax Administration’s detailed guidance for the application of the FATCA agreement on the exchange of tax information between Finland and the USA and the application of the act to enforce the DAC2 directive and sections 17b, c and d of the act on assessment procedure.
3 Spontaneous exchange of information
The spontaneous exchange of information concerns specific tax cases and is often non-recurring. Information that is not included in the automatic exchange of information is sent spontaneously to another country. Information that is obtained through tax control and may potentially have an impact on taxes in the receiving country can be sent as spontaneous information to foreign tax authorities. Sending information for comparison purposes is very important in situations where it is highly probable that one country may lose tax income. The tax authorities of other countries that have an interest in this information should be informed of any actions referring to the systematic avoidance of taxes.
The aim is to ensure the correct application of the tax treaty and national legal standards to individual income and prevent international tax evasion. Correspondingly, information sent to Finland is used to ensure that taxpayers’ tax is assessed correctly and at the correct amount.
The spontaneous exchange of information takes place based on income tax treaties, information exchange agreements, administrative assistance agreements, and the directive and regulation on administrative cooperation. Information is exchanged between the competent authorities of the EU Member States using a standard electronic form.
4 Exchange of information on request
The exchange of information on request means sending a request for information to another country in a situation where the detailed information related to taxation in Finland is required from the other country, which cannot be investigated independently in Finland but the other country’s authorities are expected to have or acquire. The information is acquired by the target country’s competent authorities that apply their national legislation to acquiring the information and send the collected information to the Finnish Tax Administration. Correspondingly, the Finnish Tax Administration collects and provides information for authorities in other countries based on their individual identified requests by complying with Finnish law.
Requests for information may broadly concern practically any information or matter that is related to taxes defined in agreements. Council directive 2011/16/EU and Council regulation 904/2010 set precise deadlines for responding to requests for information.
The need to request information may arise in any unit of the Tax Administration. Sending an request for information and responding to it, similarly to all administrative cooperation and exchange of information, takes place exclusively between competent authorities. The exchange of information on request takes place between the EU Member States through a secure channel using a standard form created for this purpose. As a rule, information is exchanged with non-EU countries using secure electronic connections, but also using data media and on paper.
Requests for information are made based on income tax treaties, limited tax treaties, agreements on administrative assistance, and the directive and regulation on administrative cooperation. In agreements on administrative assistance, the term “administrative assistance” covers not only the exchange of information on request, but also administrative assistance given for the international recovery of taxes. In administrative assistance for tax recovery, the receiving country’s authorities can initiate collection measures to cover unpaid taxes expired in the sending country. More information about administrative assistance for tax recovery is available (in Finnish) in the instructions International administrative assistance in tax recovery.
5 Publicity and confidentiality
The Finnish Tax Administration has a general confidentiality obligation regarding tax information (Act on the Public Disclosure and Confidentiality of Tax Information (1346/1999)). Information obtained through the exchange of information in accordance with Article 22 of the Convention on Mutual Administrative Assistance in Tax Matters and Article 16 of the directive on administrative cooperation is subject to the same confidentiality obligation as national tax information; however, so that the use of information is only limited to the purposes defined in the convention and directive. In practice, Finland’s obligation to keep information obtained through the exchange of information secret is stricter than defined in national law. Regulations on data protection are also addressed in the processing of information.
In addition to national law, provisions on data protection are laid down in directive 2011/16/EU on administrative cooperation, the EU General Data Protection Regulation 2016/679 (GDPR) and international agreements. To ensure confidentiality, limitations on use and data protection, the Finnish Tax Administration has appointed responsible officials who carry out or supervise the international exchange of information. No information is exchanged without an appropriate legal basis.
Tax offices can also give public income tax information to external parties within the scope of the general service principle. For example, if a foreign company requests information about an individual residing in Finland from a tax office, some of which is public tax information and some is not, the tax office can give the requesting company an extract of public tax information.
More information about the publicity of tax information and the processing of data is available in the Finnish Tax Administration’s instructions Data security and the processing of personal data at the Finnish Tax Administration.
6 International exchange of information relative to the taxpayers’ obligation to report information
According to section 7, subsection 1 of the act on assessment procedure, taxpayers must declare their taxable earnings, any deductions, information about their assets and debts, as well as other relevant information to the tax authority for tax assessment purposes. The obligation to report information applies to income and assets earned in Finland and abroad.
As a rule, natural persons and death estates receive an annual pre-completed tax return, and taxpayers must check its information. Taxpayers are obligated to correct and supplement the information and send back their tax return if the information is incomplete or incorrect. Furthermore, taxpayers are obligated to voluntarily submit a tax return, even if they have not received a pre-completed tax return, if they have had taxable income, assets or other relevant information during the tax year.
If a taxpayer fails to send back their pre-completed tax return or correct its information in e-services, they will be deemed to have submitted their tax return in accordance with the information included in the pre-completed tax return. In this case, the taxpayer will be deemed to have reported their taxable income, assets, deductions and other relevant information as they were in the pre-completed tax return.
The international exchange of information does not eliminate the taxpayers’ obligation to report their foreign income and assets. As a rule, information obtained through the international exchange of information is only received after sending pre-completed tax returns, and the information can rarely be used for taxation in Finland as it is because it is based on information collected for taxation in another country. In other words, taxpayers must, in practice, include their foreign income in their tax return. As an exception to this rule, information about pensions paid in Sweden to individuals residing in Finland is usually obtained so early after the end of the tax year that it can be used to pre-complete tax returns in Finland. This reduces the need for taxpayers to supplement their tax returns in Finland. However, in these situations as well, taxpayers are obligated to check the accuracy of the information. The information content and any changes in it are discussed between countries but, for example, when a taxpayer starts to receive completely new pension income from Sweden, there may be uncertainties in the transfer of information for taxation. Similarly, any changes in the information collection systems of a country may increase inaccuracies.
If the Finnish Tax Administration receives information for comparison purposes through the exchange of information after the start date for submitting tax returns, and the taxpayer in question has not reported the corresponding information in their tax return, the taxpayer will always be provided with the opportunity to submit a written clarification of any income missing from taxation.
If information from abroad or a correction to previously obtained information is obtained so late that taxation for the tax year in question has already ended and the income has not been taxed, the taxation can be adjusted to the detriment of the taxpayer within three years of the beginning of the year following the end of the tax year (section 56 of the act on assessment procedure). Section 56b of the act on assessment procedure entered into force on 1 January 2017 sets an extended tax adjustment period, derogating from the ground rule, for information obtained by means other than the automatic exchange of information, which is six years from the beginning of the year following the end of the tax year. The deadline for tax adjustments before the 2017 tax year based on information obtained through the automatic and other exchange of information is five years from the beginning of the year following the end of the taxpayer’s taxation.
In addition to a tax adjustment, a punitive tax increase can be imposed on a taxpayer due to income missing from a tax return (section 32 of the act on assessment procedure). Neglecting the obligation to report information may also fulfil the criteria of a tax offence and lead to a criminal conviction.
More information about the obligation to report information is available (in Finnish) in the Finnish Tax Administration’s instructions obligation of natural persons and death estates to report information for income taxation.