Browsing by Author "Järvinen, Oscar"

In a globalized market for private equity investments, the risk for international double taxation has made the applicability of tax treaties all the more important. The study is concerned with private equity fund structures, where a Luxembourgian SIF or SICAR is used as fund vehicle, where the investor is resident in Finland and where the target company is resident in a third state. In such triangular investment structures the determination of the applicable tax treaty may not always be clear due to differing tax and private laws of the states involved as well as their different interpretations of the OECD Model Tax Convention. Conflicting laws and interpretations of states lead to classification conflicts, which in turn may result in double taxation or double non-taxation; both of which are undesired outcomes in view of many states. The problems with and risks for double taxation are not limited to the determination of the correct applicable tax treaty. There may also exist a conflict regarding the determination of which tax treaty article shall be applied to a certain item of income. In this study that item of income consists of the proceeds from the realized private equity investment. To solve these questions states employ different methods of classification of foreign entities and foreign-sourced income. Classification in Finland is not regulated by law and is thus open to wide interpretation in Finnish courts. Entity and income classification by the Finnish courts is, however, subject to EU law. Classification may not result in taxation which is in conflict with EU law; i.e. EU law may have a strong guiding effect in the classification process. When the applicable tax treaty and tax treaty article has been determined the foreign-sourced income shall be classified for domestic tax law purposes to determine the tax consequences for the recipient of the income. The study consequently considers tax consequences for different Finnish investors. Tax regimes may not necessarily be permanent. Due to tax laws being strongly affected by fiscal interests of states lightly taxed investment structures run the risk of seeing tax benefits limited by changes in prevailing tax regimes. The OECD has recently begun its work on the BEPS project, which may have a significant impact on the tax treaty applicability in private equity fund structures. The study gives an insight into the likely coming changes.