The Finnish supreme administrative court issued an order that income on mobile games received by the Finnish company from the Chinese company, under the agreement, constituted royalties in accordance with the treaty. The issue in this case was whether payments to a Finnish company, from a Chinese company, constituted royalties (under treaty Article 12) or business profits (Article 7) for taxation purposes.
Initially the Finnish tax administration and the Helsinki Administrative Court each concluded that the payments were not royalties but were business profits under Article 7 of the Finland-China income tax treaty.
Finally, the supreme administrative court, on appeal, gave specific attention to the agreement and its provisions in light of the OECD Commentary. The court, in order to determine the income classification, had to analyse the language of the agreement between the Finnish company and the Chinese company, and more specifically the nature of the rights granted to the Chinese company under the agreement. According to the high court, the rights granted under the agreement were specifically rights that were mentioned in paragraph 13.1 of the OECD Commentary on Article 12. Therefore, the rights licenced under the agreement constituted such copyrights and were regarded as royalties under Article 12 of the Finland-China income tax treaty in context of software.
