Supreme Administrative Court Confirms that a Foreign Central Bank is Comparable to the Bank of Finland for the Purposes of Exemption from Finnish Withholding Tax on Dividends

Borenius successfully represented a foreign central bank in a process concerning the bank’s eligibility for tax exemption on Finnish-sourced income. On 25 March 2025, the Finnish Supreme Administrative Court (“SAC”) delivered a precedent SAC 2025:22, ruling that, by virtue of the free movement of capital set forth in the EU law, the central bank of non-EU/EEA state shall be treated equally to the Bank of Finland that has been explicitly stipulated as a tax-exempt entity under the Finnish domestic tax laws.

The central bank of State A had obtained a withholding tax card at a zero per cent rate applicable for Finnish-sourced dividends in 2023. The Tax Recipients' Legal Services Unit (“TRLSU”) sought to annul the zero-rate tax card and impose withholding tax under Article 10 of the Finland–State A tax treaty by filing a claim before the Board of Tax Adjustment. The Board of Tax Adjustment accepted the TRLSU’s claim, leading the central bank to appeal the negative decision.

Instead of pursuing the regular process by appealing the decision to the Administrative Court, the central bank filed for a leave to appeal for a precedent to the Supreme Administrative Court. A precedent appeal is an expedited process available for cases with significant precedential value. However, this process is rarely applied in practice as it requires consent from all parties involved, i.e. the taxpayer, the TRLSU and the Supreme Administrative Court itself.

The SAC decided to grant the leave to appeal for precedent and examined the case to determine whether the central bank in question should be eligible for exemption from withholding tax on Finnish-sourced dividends as a result of the free movement of capital set forth in the Treaty on the Functioning of the European Union (“TFEU”), given its comparability to the Bank of Finland, which enjoys tax-exemption under domestic law.

The SAC held that a third-country resident entity does not need to be identical to a domestic tax-exempt entity in order to be entitled to similar treatment, but instead, it is only relevant to determine to which domestic entity the third-country resident is most comparable. The SAC held that the central bank in question is objectively comparable to the Bank of Finland given their legal and operational characteristics. Therefore, imposing withholding tax on the Finnish-sourced income received by the foreign central bank while exempting the Bank of Finland would constitute a prohibited restriction on the free movement of capital under Article 63(1) TFEU. The Court rejected all the TRLSU’s arguments concerning the overriding reasons that could have justified such a restriction. As a result, the Court annulled the decision of the Board of Tax Adjustment and reinstated the zero-rate tax card issued by the Tax Administration.

In addition to the case being a precedent appeal decision, this was an exceptional case also because the Supreme Administrative Court ordered the Finnish State to reimburse the legal expenses incurred by the central bank in the appeal process. Thus far, reimbursements have rarely been ordered in tax litigation processes.

The SAC’s decision sets a precedent for future cases involving foreign central banks and other foreign public entities investing in Finland.

The decision affirms that the free movement of capital under the EU law applies broadly to foreign entities comparable to public entities under the Finnish domestic laws. Accordingly, the tax exemption afforded to domestic public entities must be extended to objectively comparable foreign entities, and any restrictions to this freedom shall be interpreted narrowly.

If you have any questions about the ruling, please contact the undersigned or your regular Borenius contact.