On 17 September 2015 the CJEU handed down judgment in three joined cases concerning the interpretation of Art 63 TFEU (free movement of capital) in the context of Dutch withholding tax legislation. The legislation in question imposed a withholding tax on dividends distributed by a resident company to both resident and non-resident taxpayers. It contained a mechanism by which resident taxpayers could offset the withheld tax against their income tax or corporation tax. However for non-resident taxpayers the tax paid was a final tax.
The Court confirmed that, for companies, relevant factors when comparing the tax burdens of resident and non-resident taxpayers include taking into account expenses which are directly linked to the actual payment of dividends. It held that if, after taking relevant factors into account, the referring court found that the legislation resulted in a higher tax burden to non-resident taxpayers, this would be liable to deter non-resident taxpayers from investing in resident companies and would constitute a restriction on the free movement of capital.
The CJEU held that the difference in treatment could not be justified by a relevant difference in the situations of resident and non-resident taxpayers. Neither could the restriction on Art 63 TFEU be justified by the application of a double taxation convention.
This article appears in the JHA September 2015 Tax Newsletter, which also features:
You can download the complete newsletter as a PDF here: September 2015 – Tax Newsletter
