Family pensions are Finnish-source; US citizenship tax not credited

Vero has updated its in-depth guidance on taxing pension income in cross-border situations with two points of new substance amid extensive editorial rewording, in both the Finnish (Eläketulojen verotus kansainvälisissä tilanteissa) and Swedish (Beskattning av pensionsinkomster i internationella situationer) versions. Family pensions paid to recipients with limited tax liability are Finnish-source incomeVero, and tax the United States levies purely on citizenship grounds on a US citizen resident in Finland is not creditable in FinlandVero.

On family pensions (section 4.2.4), the treaty article applied follows the article that would have applied to the deceased's pensionVero: a work- or entrepreneur-pension-based or national-pension-system family pension is social-legislation-based where the treaty has such a provision, mirroring the deceased's own pensionVero. Where the treaty has no social-legislation provision, a work-pension-based family pension may fall under the private-service pension provisionVero, while a national-pension-based family pension is not prior-service-based and falls under the other-income articleVero. New is the domestic-law anchor: where a family pension is paid to a recipient with limited tax liability, it is income sourced in Finland (Suomesta saatua tuloa) to the same extent the deceased's pension would have beenVero. Where treaty taxing rights turn on the pensioner's citizenship, the recipient's citizenship — not the deceased's — governsVero.

On the United States (section 5.5), the treaty baseline is unchanged: a private-service pension of a person resident in Finland is taxed only in Finland (Article 18(1)(a) of the Finland-US treaty, SopS 2/1991)Vero, while public-service and US social-security pensions are taxed only in the USVero. New is the citizenship-taxation rule: where a US citizen resident in Finland is taxed by the US on pension income purely on citizenship grounds, and the treaty would not otherwise give the US taxing rights, the obligation to relieve double taxation lies with the USVero — and Finland cannot credit tax levied in the US on pure citizenship grounds where the treaty gives the US no taxing right (Articles 18 and 23)Vero. This mirrors the saving-clause logic of Article 1(4)-(5) of the US treaty, under which the US may tax its citizens as if the treaty did not apply, except for listed income, and the US relieves double taxation where Finland taxes on residence and the US only on citizenship.

The surrounding rewrite is editorial: terminology modernised (hemvist for residence, nationell lagstiftning for domestic law), the social-legislation pension list made explicit (TyEL 395/2006, YEL 1272/2006, MYEL 1280/2006, MEL 1290/2006, athletes' accident and pension cover 276/2009, national pension 568/2007, guarantee pension 703/2010), while the reverse-credit (käänteinen hyvitys) passages on Spain are restated with the same scope and the Italy/Switzerland/Thailand passage drops the reverse-direction sentence in which the source state relieved double taxation when the pensioner resided in Finland.

Legal basis: Income Tax Act (tuloverolaki 1535/1992) sections 9-11 on general and limited liability; section 10 point 5 on Finnish-source pensions; the Finland-US tax treaty (SopS 2/1991) Articles 1(4)-(5), 18 and 23; applicable treaty pension articles (typically 17/18 or 18/19).