Brussels, 17 October 2006
Direct taxation: Commission requests Greece to end discriminatory taxation of dividends from foreign companies
The European Commission has formally requested Greece to abolish discriminatory taxation of dividends paid by companies of other Member States. Greece exempts dividends paid by Greek companies to individuals, but taxes dividends paid by companies of other Member States. The Commission considers this different treatment contrary to the EC Treaty. The request is in the form of a reasoned opinion under Article 226 of the EC Treaty. If Greece does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.
"The rules of the Internal Market forbid discrimination of dividends paid by companies of other Member States" said EU Taxation and Customs Commissioner László Kovács. "Dividends paid from other Member States should be taxed in the same way as dividends paid by domestic companies".
Greece exempts from income tax dividends paid by Greek companies to individual shareholders. The aim of this exemption is to avoid double taxation of the company profits. Such double taxation would arise when the profits are taxed first at the level of the company and then again in the hands of the individual shareholders when distributed as dividends.
In contrast, dividends paid by companies of other Member States to individual shareholders are not exempt.
Such a difference in treatment constitutes a restriction on the free movement of capital, guaranteed by Article 56 of the EC Treaty, as the European Court of Justice has ruled in Verkooijen (Case C-35/98). Where the individual shareholder has control over the foreign company the difference in treatment constitutes a restriction of the freedom of establishment, guaranteed by Article 43 of the EC Treaty.
The Commission opened this case in the follow-up to its Communication
"Dividend taxation of individuals in the Internal Market" of 19.12.2003
(COM(2003)810). One of the main conclusions of this Communication was that
dividends paid from other Member States could not be subjected to higher taxes
than dividends paid from within the Member State (IP/04/25).