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ECJ: Advocate General finds the 5% add-back of tax credits for withholding tax at source abroad compatible with Parent-Subsidiary Directive — Orbitax Tax News & Alerts

On 24 January 2008, Advocate General Eleanor Sharpston of the European Court of Justice (ECJ) gave her opinion in the case of Banque Féderative du Crédit Mutuel v. Ministre de l'Économie, des Finances et de l'Industrie (C-27/07). The French Administrative Supreme Court had requested a preliminary ruling from the ECJ on 17 January 2007.

In this case, the Advocate General concluded that where a Member State has opted (under Art. 4(2) of the Parent-Subsidiary Directive to provide that any charges relating to a parent company's holding in a subsidiary of another Member State and any losses resulting from the distribution of the profits of the subsidiary may not be deducted from the taxable profits of the parent company, it is not contrary to that provision for the management costs relating to the holding to be fixed as 5% of the total revenue from the holdings, including tax credits compensating for withholding tax levied on the dividend in accordance with Art. 5(2), (3) or (4) of that directive.