On 24 June 2026, the Supreme Administrative Court of Finland (SAC), in decision SAC 2026:50, confirmed that a Luxembourg UCITS sub-fund was not a controlled foreign company (CFC) of its Finnish institutional investor, despite the Luxembourg manager having outsourced portfolio execution to a UK group affiliate.
Three separate questions, three separate rules
When evaluating the tax treatment of a Finnish investor in a foreign vehicle, the vehicle may be subject to three distinct tests. First, ordinary corporate taxation determines whether the vehicle is a separate taxable entity. Second, it must be determined based on the investment fund tax exemption provision (section 20a of the Income Tax Act), whether the vehicle is to be treated tax exempt, meaning that it has the character of a genuine collective investment undertaking: is it open-ended, does it have an unrestricted investor base, does it meet the minimum number of unit holders, and does it distribute profits as required? A holding company fails this test regardless of how passive its income is, since it lacks the redeemable units and the open investor base that define a fund. Third, the CFC rules in the Controlled Foreign Company Act (1217/1994) apply once a Finnish taxpayer holds at least 25 per cent of a low-taxed entity. In assessing the applicability of the CFC rules, the key questions to consider are: has the entity genuinely established itself, and does it carry out real economic activity, in its own state of residence? This is a substance and location test built on the EU's anti-tax avoidance directive and the Cadbury Schweppes case law of the ECJ.
Passing the fund test does not mean passing the CFC test
The now issued ruling SAC 2026:50 confirms, citing its own prior rulings SAC 2025:5 and SAC 2025:52, that a fund's ordinary investment activity can count as economic activity for CFC purposes. The SAC case law has clarified the content of the CFC exemption: the fund's home jurisdiction must also have personnel capable of running the business independently and taking its day-to-day decisions there. In its ruling SAC 2025:52, the Finnish SAC confirmed what happens when this substance is missing: a Swedish vehicle outsourced everything to its manager, kept no independent substance, and had no legal obligation to structure itself that way, so it was treated as a CFC despite looking like a genuine fund. A vehicle may qualify as an investment fund for tax purposes and still fail to meet the separate economic activity requirements of the CFC exemption.
Whose activity counts?
This is the key question that the decision SAC 2026:50 answers. The tax authority argued that substance has to sit inside the fund itself. The SAC took a broader view: the fund's own day-to-day activity was held to include what its Luxembourg manager does under UCITS delegation, namely administration, risk management, compliance, marketing and oversight, not just trade execution. Because those retained functions are substantial, outsourcing execution to the UK group affiliate did not break the connection. The investor cannot merely rely on the asset manager's activities. Rather, those activities may form part of the fund's own economic activity where they are performed on the fund's behalf within the UCITS framework. Under Finnish law, the fund's economic activity consists of what the manager does on its behalf, if what remains locally is genuinely significant. However, the SAC held (by a 4 to 1 vote) that if the management moved wholesale abroad, this would break the Luxembourg connection. No independent decision making would remain where the fund resides, and the exemption would be lost. The dissent agreed on outsourcing but would have preserved the exemption on full relocation, provided the new manager stayed in the EEA.
Practical takeaway
Based on the recently published SAC ruling, the dividing factor is not the fund's formal characteristics. It is about where the substantive functions sit, and whether enough functions remain genuinely local. Partial delegation of portfolio execution, which is common in UCITS structures, does not prevent the application of the economic activity exemption under Finnish CFC rules, provided that significant marketing and oversight functions remain in the fund's jurisdiction of residence. Full delegation, however, would.
We assume that this interesting Finnish decision could be of importance for other tax jurisdictions, too.
