15 December 2006

Law Now

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Withholding Taxes on Dividends

The European Court of Justice (ECJ) has given its decision in Denkavit (C170/05). The case was concerned with whether French law, which levied a withholding tax on dividends paid by a French company to its Dutch parent but not on dividends paid to a French parent, was in breach of EU law. The ECJ has followed the opinion of Advocate General Geelhoed and found in favour of the taxpayer.

The ECJ rejected the French Government£s argument that there was no discrimination because under the terms of the French/Netherlands double tax treaty the withholding tax levied by France could be set against any tax arising on the dividend in the Netherlands. As dividends were exempt from tax in the Netherlands the Dutch parent was not in a position to obtain benefit for the withholding tax.

The facts of the case arose before the Parent-Subsidiary Directive (which prohibits withholding tax on dividends paid by a resident company of one member state to a company resident in another where that company holds at least 20% of the share capital (reducing to 15% from 1 January 2007) in the paying company. However, the decision will be of interest to exempt taxpayers such as pension funds receiving dividends from companies resident in other member states that have suffered withholding tax.

For a more detailed analysis see our original Law-Now commenting on the Advocate General£s opinion by clicking here.

For further information, please contact:

Michael Boutell
London
+44 (0) 20 7367 2218

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