On 25 July 2006, the European Commission announced that it had sent Belgium, Italy, Luxembourg, the Netherlands, Portugal and Spain a formal request to end its discriminatory taxation of dividends paid to foreign companies (case reference numbers: 2004/4347 (Belgium), 2004/4350 (Italy), 2004/4352 (Luxembourg), 2004/4352 (Netherlands), 2004/4353 (Portugal) and 2004/4354 (Spain)).
Belgium, Italy, Luxembourg, the Netherlands, Portugal and Spain tax outbound dividends more heavily than domestic dividends. Domestic dividends are in those countries not taxed or taxed at a very low rate, whereas outbound dividends are subject to withholding taxes ranging from 5% to 25%.
With respect to Belgium, Italy, the Netherlands, Portugal and Spain, the discrimination concerns outbound dividends paid to EU Member States and the EFTA countries, whereas in the case of Luxembourg the discrimination only concerns the EFTA countries.
The Commission, for reasons analogous to the ones set out in its Communication of 19 December 2003 on the taxation of dividends received by individuals, considers that the rules restrict the free movement of capital as well as the freedom of establishment provided for in the EC Treaty and the EEA Agreement.
The request is in the form of a reasoned opinion, which is the second stage of the infringement procedure under Art. 226 of the EC Treaty. If the countries concerned do not reply satisfactorily to the reasoned opinion within 2 months, the Commission may refer the matter to the European Court of Justice (ECJ).
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