Fidelity Funds: Danish Withholding Tax on Dividends Breaches EU Law
The Court of Justice of the European Union (“CJEU”) found in the Fidelity Funds case (C-480-/16) that Danish legislation regarding withholding tax on dividends distributed to non-resident investment funds is not compatible with EU free movement of capital.
The taxpayers, investment funds (“UCITS”) registered in the UK and Luxembourg, reclaimed withholding tax paid on dividends received from Danish companies. Danish law provided for tax to be charged on dividends paid by a Danish company to a foreign UCITS, but not on dividends paid to a Danish UCITS. The CJEU held that this difference in treatment amounted to a restriction on the free movement of capital.
The difference in treatment related to objectively comparable situations. The purpose of the Danish legislation was twofold: first, to prevent double taxation of the UCITS and its investors; and secondly, to defer taxation to the level of the investors. On the double taxation point, the CJEU found that resident and non-resident UCITS were in a comparable position as Danish law imposed tax on the income received by non-resident UCITS, the same as for resident UCITS. On the second point, the court found that Danish and non-Danish UCITS were again comparable. The fact that Danish UCITS were subject to a minimum distribution requirement and a corresponding obligation for the fund to act as withholding agent on its investors’ behalf – a condition not applicable to non-Danish UCITS – was not a decisive difference between the two types of UCITS. It was the substantive conditions of the power to tax investors’ income that was decisive, not the method of taxation used. Denmark had the power to tax resident investors on dividends distributed by non-resident UCITS. The fact that Denmark could not tax non-resident investors on dividends distributed by non-resident UCITS was consistent with the logic of moving the level of taxation from the vehicle to the investor. Moreover, the restriction was not justified by overriding interests relating to the balanced allocation of taxing powers or fiscal coherence.
This article appears in the JHA June 2018 Tax Newsletter, which also features:
- A/S Bevola Applies Marks & Spencer to the Losses of a Foreign Permanent Establishment
- Hornbach-Baumarkt v Finanzamt Landau: German Transfer Pricing Legislation Is Compatible with Freedom of Establishment
An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation
On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC  UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
Draft Finance Bill 2022—tax avoidance measures
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, considers the draft Finance Bill 2022 clauses published on 20 July 2021 in relation to tax avoidance and recent updates to the tax avoidance regime.
Getting Closer: A Global Minimum Tax on Corporations
On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted. Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.
The DBKAG & K (CJEU) decision: an opportunity for investment funds?
On 17 June 2021, the European Court decided the joint cases K (C-58/20) and DBKAG (C-59/20) regarding whether the supply of certain services constituted the “management of special investment funds”, benefiting from the VAT exemption enshrined in Article 135(1)(g) of Council Directive 2006/112/EC.