Keywords
Summary

Keywords

1. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Exemption, in the Member State where the subsidiary is established, for withholding tax on dividends distributed to the parent company – Withholding tax

(Council Directive 90/435, Art. 5(1))

2. Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Exemption, in the Member State where the subsidiary is established, for withholding tax on dividends distributed to the parent company – Exception for domestic or convention-based provisions designed to eliminate or lessen economic double taxation of dividends

(Council Directive 90/435, Arts 5(1) and 7(2))

Summary

1. A withholding tax applied to the ‘refund’ made by a company making a distribution to its parent company pursuant to a convention designed to avoid double taxation, in the form of an ‘adjustment surtax’, is not a withholding tax on distributed profits generally prohibited by Article 5(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, when that adjustment surtax is an additional tax on corporate dividends borne by the company making the distribution and when, therefore, the refund of the amount of that surtax to the parent company must be regarded as a transfer of a portion of tax revenue resulting from the waiver, by the State where the subsidiary is established, of definitive collection of that revenue in order to limit the economic double taxation of dividends distributed to the parent company by its subsidiary, as agreed by the two States party to that convention.

This is, however, subject to the examination by the national court of the different relevant aspects, in particular, the question whether the tax authorities of the Member State where the subsidiary is established in practice do not, as a matter of course, waive the tax revenue from the adjustment surtax in the event of a dividend distribution by a company established in its territory to a company established in another Member State, including the case in which the amounts corresponding to that surtax are transferred directly by the company making the distribution to the recipient company. If there were found to be such a waiver, that transfer could be regarded as a distribution of profits. In that case, the condition relating to the taxable amount, a prerequisite for categorisation as a withholding tax, under which the taxable amount must be the distributing company’s income from shares, would be fulfilled. In so far as the two other conditions for classification of a tax measure as a withholding tax, relating to the chargeable event and to the determination of the taxable person, are also fulfilled in respect of the withholding tax in question, that withholding tax is a withholding tax on profits within the meaning of Article 5(1) of Directive 90/435.

(see paras 26, 35-36, 38-39, 42, operative part 1)

2. A withholding tax on profits distributed by a company making a distribution and established in one Member State to its parent company established in another Member State, pursuant to a convention designed to avoid double taxation generally prohibited by Article 5(1) of Directive 90/435 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, could be held to come within the scope of Article 7(2) of that directive only if, first, that convention designed to avoid double taxation contained provisions intended to eliminate or mitigate the economic double taxation of dividend distributions and, secondly, the charging of that withholding tax did not cancel out the effects thereof, a matter which it would be for the referring court to assess.

(see para. 47, operative part 2)