Taxation abroad contrary to tax treaty

You may have paid more tax on your foreign-sourced income than the applicable tax treaty allows. If you have paid too much tax to the source country, you must request a refund from that country. If the income is dividends, interest or royalties, you can usually get a refund of the tax paid in excess by giving an account of the matter either to the payor or to the tax authorities of the source country. In general, if tax has been collected on your income contrary to the tax treaty because of a misunderstanding or missing information, adjusting your tax assessment is a simple process.

Too much tax collected on dividend, interest or royalty income

Most countries collect 25–30% of tax on dividends, interest and royalties paid to other countries. However, certain countries have signed tax treaties that reduce the tax on these types of income. For example, a treaty may provide that the tax rate for residents of the other contracting state is only 15%. The recipient of the income in the other contracting state must provide an explanation of how they are entitled to treaty benefits. If the recipient does not provide an explanation, the payor must collect the full amount of tax. If this explanation is given in advance, the payor can take it into account when paying and withhold tax on the payment at the lower rate provided by the treaty. If the payor withholds tax at a higher rate contrary to the tax treaty, the income recipient can still get the benefit of the tax treaty by requesting a refund from the tax authorities of the payor’s country. Many countries have special forms that must be used when requesting a refund based on a tax treaty.

Example: Maria is a tax resident of Finland and she receives dividends from Denmark. However, the Danish payor has withheld 26% of tax on the dividends, even though the tax treaty between Finland and Denmark provides 15%. Maria can contact either the payor or the Danish tax authorities to ask for instructions on how to request adjustment to her tax assessment. She can also access the Nordisk eTax service (nordisketax.net) for guidance on how to request a refund of taxes paid on dividends received from Denmark.

It is usually required that a residence certificate issued by the tax authorities of the recipient’s country of residence is enclosed with the explanation or the refund request If you are a Finnish resident and you need a certificate, contact the Finnish Tax Administration.

Other income taxed contrary to tax treaty

Other countries may tax your income, such as wages, in excess of what tax treaties provide. This usually happens because the payor has not had enough information on the recipient’s circumstances or the provisions of the applicable treaty. Most cases can be resolved by providing further information to the payor.

Example: Antti, a Finnish researcher, has received wages from a Swedish university for 9 months. During this time, Antti has worked in Finland for 5 months and in Sweden for 4 months. Sweden has collected tax on all of Antti’s wages for the entire 9 months, even though the tax treaty between Finland and Sweden only allows Sweden to tax the portion of the wages paid for work done in Sweden (4 months). Antti must contact the university and explain that a part of his work was done in Finland. If the university cannot refund the tax Antti has paid in excess, they can instruct him on where to request adjustment of his tax assessment. If necessary, Antti can also contact the Swedish tax authorities directly.

Contact the Finnish Tax Administration if taxation is not adjusted

In some cases, the matter is not resolved even if you request tax adjustment from the other country. The other country may not have enough information to make the adjustment, or they may have interpreted the income type differently than the Finnish authorities. If you have not been able to get your refund from the other country, contact the Finnish Tax Administration. The Tax Administration will assess whether the other country’s decision is based on reasons that are acceptable in Finnish tax assessment. If so, the Tax Administration can eliminate the double taxation of your income by adjusting your tax assessment in Finland.

If necessary, call our service number for international tax matters.

You can also request a mutual agreement procedure

Finland’s tax treaties give the option for a mutual agreement procedure (MAP). In mutual agreement procedures, the official authorities of the contracting states (usually the tax authorities of the two countries) conduct negotiations on the elimination of double taxation or other taxation not allowed by the treaty.

In a MAP, the officials of the two countries seek to resolve the issue by corresponding together and by discussing their views on the matter. These negotiations may take years, and they may end with the authorities asking you to submit a request for tax adjustment or refund to the source country. For this reason, MAP should not be used as the primary way of resolving issues instead of directly requesting adjustment or refund.

If a request for adjustment has been submitted on the matter, the MAP negotiations in Finland will be put on hold until a decision is issued for the request. The result of the negotiations may be that one or both of the countries give up a part or all of their tax.

Sometimes it is clear that the other country is entitled to tax your income. However, you may still be unhappy with your tax assessment. For example, the other country may have rejected the deductions you have claimed. In these cases, the question is not whether tax has been collected on your income contrary to the applicable tax treaty, but whether your taxes were assessed in accordance with the other country’s legislation. These matters are not discussed in MAP negotiations.

Read more: Application for mutual agreement procedure