Finland and France signed a new tax agreement on April 4, 2023, which is supposed to replace the previous tax agreement from 1970. The entry into force of the new tax agreement still requires the approval of the parliament and an implementing act.
The agreement specifically changes the taxation of pension received from other than public service. With the new agreement, Finland can also tax pensions paid from Finland to France for other than public service. In these cases, double taxation is exceptionally eliminated by the source country, i.e. the tax paid in France on the pension paid to a person living in France is deducted from the tax in Finland.
For those persons who, at the time of signing the agreement, lived in one contracting state and received a pension from another, the 1970 agreement will continue to apply, i.e. the pension will only be taxed in the person's state of residence.
The new agreement also changes the taxation of portfolio dividends. With the new agreement, the source country of the dividend income is given the right to charge a 15 percent withholding tax for the portfolio dividend. The method used to eliminate double taxation will also change from the exemption method to the credit method in accordance with Finland's current tax treaty policy.
In addition, the new agreement includes a permanent establishment article in accordance with the latest OECD Model Tax Convention. This is the first time that a permanent establishment article is included in this form in a tax treaty concluded by Finland. The article in question is part of the results of the BEPS project launched by the OECD and the G-20 countries, which prevents erosion of the tax base and profit shifting.