On June 25, 2015, Advocate General Niilo Jääskinen (AG
NJ) rendered his long-awaited opinion in the C-17/14 case pending
before the European Court of Justice (ECJ) involving withholding
tax applied under Dutch tax law to outbound dividend
Please see our Update for July 2014 for further details on the facts and legal background of this case involving a French taxpayer who was trading in Dutch equities derivatives.
In a nutshell, the taxpayer argues that it is treated disadvantageously compared to a Dutch resident corporate taxpayer under comparable circumstances, and this different tax treatment in the Netherlands constitutes a violation of the free movement of capital and the anti-discrimination provision laid down in the EU Treaty, since (i) it could not fully credit the Dutch withholding tax in France due to losses incurred in France, and (ii) its direct (e.g. interest on financing of the shares) and indirect (e.g. hedging) costs were not taken into account in the Netherlands, since the Dutch withholding tax is levied on the gross income distributed.
In his joint opinion for cases C-10/14, C-14/14 and the C-17/14, AG NJ concluded the following:
- The application of the freedom of movement of capital principle requires, in presence of a withholding tax applied to outbound dividends, that the comparison between the tax treatment of a non-resident company and that of a resident company is made by reference to the final corporate income tax paid by the resident and of which the withholding tax constitutes an advance payment;
- In addition, for the purpose of determining whether the actual tax burden on a non-resident company is heavier than that of a resident company, one should take into account the expenses directly linked to the shares from which the dividend arises;
- Finally, with respect to the influence of an applicable double tax treaty, AG NJ concluded that it is not sufficient that the treaty stipulates the granting of a tax credit for an amount equal to the withholding tax that is not, in any case, guaranteed under all circumstances to cover the difference in treatment, since it is stipulated that the tax credit granted in the
- Member State of residence cannot exceed the amount of the tax due in that State.
From a French tax standpoint, and regarding whether the opinion of
AG NJ if followed by the ECJ could have an impact on French
dividend withholding tax on outbound dividends, it should be noted
that AG NJ also mentions in his opinion that the concept of
"expenses directly linked to the share from which the dividend
arises" must be interpreted by reference to the analysis of
the local tax legislation. The Conseil d'état has
already advised on this issue (CE, March 31, 2009, n° 382545)
by ruling that the relevant expenses are those directly related to
the acquisition and conservation of the securities producing the
underlying income (e.g., the custodian expenses and collection
fees), but that such expenses do not include the financial cost of
the borrowing used to fund the acquisition for the
Accordingly, even if (i) the ECJ was to follow AG NJ conclusions and (ii) one tried to apply the same reasoning in a case involving French dividends, it is highly likely that the FTA and/or French tax courts would only recognize custodian and collection fees as "directly linked" under French law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.