FFF-Legal

Below are highlights of recent devlopments across the EU in the field of direct taxation. For further information, please contact Damien Fiott on This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  

The European Commission referred Austria, Germany and Portugal to the European Court of Justice over discriminatory tax provisions.

• Austrian rules on fiscal representatives

The Commission criticises the Austrian rules which request foreign investment funds, real estate funds and credit institutions to appoint a fiscal representative established in Austria when carrying out operations in Austria. The Commission considers that these provisions are incompatible with the freedom to provide services and discriminate foreign investment funds, real estate funds and credit institutions as well as foreign certified public accountants which, as a result of this rule, cannot be appointed as fiscal representatives.

•  German taxation of foreign pension institutions

In Germany, dividends paid by German companies to German "Pensionskassen" are either subject to a reduced withholding tax rate, or the "Pensionskasse" can benefit from a partial refund of the withholding tax paid. However, similar institutions established elsewhere in the EU and in the European Economic Area cannot benefit from this reduced rate or partial refund. For another category of German pension institutions, the "Pensionsfonds", the dividends received are taken into account in the annual tax assessment procedure and are taxed on a net basis at the general corporate tax rate of 15 %. However, dividends paid from Germany to similar foreign institutions are subject to a final withholding tax of 25 % on the gross dividend, without the possibility of deducting any costs. A similar distinction is made between interest payments paid to "Pensionskassen" and "Pensionsfonds" or to a foreign pension institution.

•  Portuguese taxation of outbound dividends

 Portuguese tax rules may in certain cases lead to higher taxation of dividend payments to foreign companies (outbound dividends) than dividend payments to domestic companies (domestic dividends). While the legislation provides for no or only very low taxation of domestic dividends, outbound dividends are subject to withholding taxes up to 20%. The Commission considers that these rules restrict both the free movement of capital and the freedom of establishment.

Commission asks Belgium to change provisions on inbound dividends and foreign investment companies

The European Commission has sent two reasoned opinions to Belgium: the first request refers to Belgian rules regarding certain inbound dividends received by natural persons. Under Belgian law, residents in Belgium pay a tax of 15 % on dividends paid by a Belgian company of which the majority of the shares are held by natural persons or of which part of the capital is contributed by a private investment company established in Belgium. Dividends paid out by similar companies resident in other European Economic Area countries are subject to a tax rate of 25%. The Commission considers that the Belgian provisions are discriminatory and restrict the free movement of capital and the freedom of establishment.

The second reasoned opinion refers to legislation which discriminates against foreign investment companies. Under Belgian law, Belgian investment companies do not effectively pay tax on their Belgian-sourced interest and dividend income as they get a refund for this kind of income. Foreign investment companies have to pay withholding taxes of 15 or 25 % on their Belgian-sourced interest and dividend income and cannot claim refunds. The Commission considers that the Belgian law is discriminatory and restricts the free movement of capital and the freedom of establishment.

Commission requests UK to amend income tax exemption for seafarers

The European Commission has requested the United Kingdom to change its income tax provisions which allow a tax deduction for the earnings of seafarers which, in practice, has the effect of exempting all their relevant earnings from income tax. This right however, is only granted to seafarers resident in the UK. The Commission considers these rules to be discriminatory and to constitute a restriction on the free movement of people.

Commission asks Luxembourg to amend inheritance tax provisions

The European Commission has asked Luxembourg to amend its legislation on inheritance tax. This legislation stipulates additional conditions for non-resident heirs and, in particular, freezes their entire estates until they provide an additional guarantee. A non-resident heir has to provide an additional guarantee for the payment of the amount due before being able to take possession of the inheritance and if the heir is not able to provide such a guarantee, the inherited assets are frozen until the guarantee has been put in place. This freeze rule does not apply to resident heirs and therefore constitutes a discriminatory practice. The Commission takes the view that this discriminatory arrangement is disproportionate and that it is contrary to the provisions of the Treaty on the Functioning of the EU concerning the free movement of capital.