Action brought on 11 November 2008 — Commission of the European Communities v Kingdom of Spain

(Case C-487/08)

(2009/C 19/29)

Language of the case: Spanish

Parties

Applicant(s): Commission of the European Communities (represented by: R. Lyal and I. Martinez del Peral Cagigal)

Defendant(s): Kingdom of Spain

Form of order sought

Pleas in law and main arguments

Under the Spanish legislation, companies which have a substantial holding in the capital of a branch may deduct from their taxable income 100 % of the gross dividend received from that holding. In order to enjoy this facility, parent companies resident in Spain must have had a holding of at least 5 % of the capital of the resident branch of the company for an uninterrupted period of at least one year. Dividends which qualify for the application of that facility are exempt from deduction at source.

In order to enjoy that exemption, parent companies not resident in Spain were required to have a holding of 20 %, which was reduced to 15 % from 1 January 2007 and will be reduced to 10 % from 1 January 2009. Thus, unlike parent companies resident in Spain, parent companies from other Member States of the EC and Member States party to the Agreement on the European Economic Area which have a holding in the capital of at least 5 % but lower than the limits mentioned have to pay tax in respect of the dividends paid by the branch.

The Commission takes the view that by imposing a requirement of a larger holding in the capital for parent companies which are not resident than is imposed on resident companies in order to enjoy the exemption from tax for dividends distributed by the branches in Spain the difference in treatment under the Spanish legislation constitutes discrimination contrary to Article 56 EC and Article 40 of the EEA Agreement. The Commission can see no justification for this additional fiscal burden which falls on parent companies from other Member States and the Member States of the EEA.