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Brussels, 29 January 2009

Direct taxation: Commission requests Finland to end discriminatory taxation of forest income earned by non-residents

The European Commission has sent Finland a formal request to amend its legislation which leads to different taxation of forest income depending on the residence of the owner. According to the Finnish legislation, non-residents are not entitled to any deductions for expenses or other types of deductions, which are available to residents for such income. The Commission's request takes the form of a ‘reasoned opinion’ (second step of the infringement procedure of Article 226 of the EC Treaty). If Finland does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

Finland offers various forms of deductions to persons with unlimited tax liability, who are usually residents, while persons with limited tax liability, who are usually non-residents, are not entitled to such deductions. Even though the nominal income tax rate applicable to persons with limited tax liability is lower than the rate of withholding tax applicable to persons with unlimited tax liability, the absence of any right to deduct for persons with limited tax liability can mean that these persons are taxed more heavily than persons with unlimited tax liability. Where the costs are high, the tax can even exceed the net gain.

The difference in treatment between tax payers with limited liability and unlimited liability amounts to an obstacle to the free movement of capital within the meaning of Article 56 EC. The effect of the legislation is to make cross-border transfer of capital less attractive by deterring investors who are not subject to unlimited tax liability in Finland from buying forest property in Finland.

In the Commission's view the situations of persons with limited and unlimited tax liability, are objectively comparable and therefore a difference in treatment constitutes arbitrary discrimination which cannot be justified on the grounds provided under Article 58 EC (which allows discriminative measures justified on grounds of public policy or public security).

The Commission's case reference number is 2007/4228.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

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