Keywords
Summary

Keywords

International agreements – European Economic Area Agreement – Free movement of capital – Restrictions – Tax legislation – Corporation tax – Taxation of dividends

(EEA Agreement, Art. 40)

Summary

A Member State fails to fulfil its obligations under Article 40 of the European Economic Area (EEA) Agreement where it does not exempt dividends paid by resident companies to companies established in the EEA States from the deduction at source of tax on dividends under the same conditions as dividends paid to resident companies or to companies established in other Member States, by requiring that, in order to benefit from the exemption, companies established in the two EEA States in question hold at least, respectively, 10% or 25% of the shares of the distributing resident company and companies having their seat in the Member State concerned or in another Member State hold shares representing at least 5% of the paid-up nominal capital of the resident distributing company.

Such a difference in treatment as regards the method of taxing dividends paid to beneficiary companies established in the EEA States in question, compared with those paid to beneficiary companies established in the Member States is likely to deter companies established in the former two States from making investments in the Member State concerned. Moreover, it makes it more difficult for a resident company to raise capital from the two EEA States in question than from the Member State concerned or another Member State of the Community. It thus constitutes a restriction on the free movement of capital which is, in principle, prohibited by Article 40 of the EEA Agreement.

The argument based on the different situations of, on the one hand, companies having their seat in Member States of the Community and, on the other hand, companies established in the two EEA States in question cannot justify the requirement that the latter companies hold a higher stake in the capital of the resident companies distributing the dividends in order for them to benefit, like the former companies, from exemption from the deduction of tax at source on the dividends which they receive from resident companies. In that regard, although a difference in the system of legal obligations of the EEA States in question in the tax area, in comparison with those of the Member States of the Community, is capable of justifying a State in making the benefit of exemption from deduction at source of the tax on dividends subject, for companies established in the two EEA States in question, to proof that those companies do in fact fulfil the conditions laid down by its national legislation, it does not justify that legislation in making the benefit of that exemption subject to the holding of a higher stake in the capital of the distributing company. Such a requirement bears no relation to the conditions otherwise required from all companies in order to be entitled to that exemption, namely that companies take a certain legal form, that they be subject to tax on profits and that they be the final beneficiary of the dividends paid, those being conditions with which the national tax authorities must indeed be able to verify compliance.

(see paras 37, 39, 47-48, 50, 52, operative part)