Details of the new income tax treaty between Finland and Canada, signed on 20 July 2006 have become available. The new treaty was concluded in the Finnish, Swedish, English and French languages, each having equal authenticity, and generally follows the OECD Model Convention.
The maximum rates of withholding tax are:
| - | 15% on dividends in general and 5% if the beneficial owner is a company which owns at least 10% of the voting stock in the company paying the dividends. Canada may impose a 5% branch profits tax (i) on the earnings of a company attributable to a permanent establishment in Canada and (ii) on earnings derived from the alienation of immovable property in Canada by a company carrying on a trade in immovable property (whether or not it has a PE in Canada); | |
| - | 10% on interest, with an exemption for interest derived by the contracting states and their central banks, and for interest in respect of indebtedness of the government of a contracting state or of a political subdivision or a local authority thereof; and | |
| - | 10% on royalties. There are exemptions for (i) copyright royalties and other similar payments in respect of the production or reproduction of any literary, dramatic, musical or artistic work (excluding films, etc.), (ii) royalties for computer software, patents and know-how (excluding such royalties in connection with a rental or franchise agreement) and (iii) royalties paid to the government of a contracting state. The definition of royalties includes payments for the use of, or the right to use, industrial, commercial or scientific equipment |
Deviations from the OECD Model include that:
| - | if a person other than an individual is a resident of both states, the competent authorities of the states will endeavour by mutual agreement to settle the question having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of agreement, the person will not be entitled to claim any treaty benefits, except to the extent and in such manner as may be agreed on by the competent authorities; | |
| - | no adjustment of the income of associated enterprises is allowed after 6 years from the end of the year in which the income that would be subject to such adjustment would have accrued to the enterprise. This provision, and that on corresponding adjustments, do not apply in the case of fraud or wilful default; | |
| - | capital gains derived by a resident of a contracting state may be taxed in that state if they are derived from the alienation of shares and other corporate rights, or an interest in a partnership or trust, deriving their value principally from immovable property situated in a contracting state; | |
| - | there are special provisions in the capital gains article in respect of individuals emigrated to the other state, including exit taxes and a step-up value in the state to which the individual has emigrated; and | |
| - | a miscellaneous provisions article contains various measures to prevent the abuse or misuse of the treaty |
Both states generally provide for the credit method to avoid double taxation. Canada also grants a credit for the underlying corporate tax on the profits out of which the dividends are paid, provided that the recipient company controls directly or indirectly at least 10% of the voting power in the company paying the dividends. Finland exempts dividends if the recipient company controls directly at least 10% of the voting power in the paying company. In both states, if the income derived by a resident of one state is, under the treaty, exempt from tax in that state, that state may nevertheless take into account the exempt income in calculating the amount of tax on the resident's other income (exemption with progression).