Tax
EU Law and dividend tax reimbursement |
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| Tax | |
| Written by Rafael Calvo and Salvador Pastoriza – Associates of Taxand | |
| Friday, 18 December 2009 | |
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Further developments on integration of the European internal market in the field of taxation.
In recent years, advances have been made towards the integration of the European internal market in the field of taxation. This integration has not been achieved in the traditional way, through tax harmonisation, but through European Court of Justice (ECJ) case law, and also the coordination of national tax systems implemented with the soft law of the European Commission. This European integration has given companies, pension funds, investment funds and charities of the European Union (EU) or the European Economic Area (EEA) the opportunity to claim the refund of taxes unduly paid in breach of Community law. Vincente Bootello of Taxand Spain discusses the opportunities in more detail below:Regarding dividend payments, this integration started with the amendment of the parent-subsidiary directive in 2005. The ECJ has promoted this integration with judgments like those of the Amurta case and the Aberdeen Property case. We can see a clear line in these actions towards the creation of an authentic internal market with respect to dividend payments within the EU and the EEA (EU + Norway, Iceland and Liechtenstein). Starting with the first of these two cases, the ECJ held in the Amurta case that EC Law (free movement of capital) prevents a Member State from imposing a withholding on outbound dividends while the dividends paid to a resident parent company are exempt from withholding in cases where the parent has a participation exemption. The result of this judgment has been that in other jurisdictions, that apply a participation exemption, such as Spain, and where non-residents are discriminated against, the taxpayers can claim a withholding reimbursement. The second ECJ judgment mentioned was that issued on the Aberdeen case regarding a Luxembourg SICAV which had invested in shares in a Finnish company (real estate Investment Company). Under Finnish law, payments made to domestic parent companies or funds were exempt from withholding tax, while a withholding tax applied if the dividends had been paid to a SICAV resident in another Member State. In its decision, the ECJ ruled that Member State law which discriminates between payments to national and to foreign (EU) investment funds is not in line with the freedom of establishment provisions. This conclusion is not jeopardized by the fact that the EU parent company (in this case, the Luxembourg SICAV) is an open-ended investment company which has a legal form not recognised by the law of the former State, does not appear on the list of companies referred to in the Parent-Subsidiary Directive, and is exempt from income tax under the law of the other Member State. In conclusion, we can state that the ECJ case law is clear in its recognition of a true single market (EU and EEA) with regard to dividend payments. Thus, there is an opportunity for companies, investment and pension funds to claim a refund of incorrectly paid taxes. Taxand has already identified good chances of success in the reimbursement of withholdings for investment and pension funds in Spain, France, Germany, the Netherlands, Italy, Belgium, Denmark, Poland, Finland, and also in Luxembourg and Portugal with respect to pension funds. The increasing level of European integration in taxation means that more firms, across the continent, are likely to benefit going forward. Vicente Bootello is a Partner with Taxand, the world’s largest independent global network of specialist tax advisors to multinational businesses.
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