Tax treatment of cross-border dividends and Finland's tax reform of 2005

Finland will apply a new system for taxing companies and their shareholders effective 1 January 2005. Finland's current dividend imputation credit system applies only to dividends distributed by a Finnish company to another Finnish company or to a Finnish resident individual. Cross-border dividends are excluded from the scope of the imputation credit system. The new system for taxing dividends, whose purpose is to create a dividend tax system that complies with the EC Treaty, is designed to bring cross-border dividends and domestic dividends generally into line vis-à-vis treaty countries and the EU Member States. This article examines the new system for taxing dividends.