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Brussels, 5 July 2007

Direct taxation: Commission takes Greece to the Court due to discriminatory taxation of dividends from foreign companies

The European Commission has decided to refer Greece to the European Court of Justice (ECJ) because Greece exempts from income tax dividends paid by Greek companies to individuals while taxing dividends paid by companies established in other Member States. As far as this different treatment is applied to dividends from companies established in the EU or in the EEA/EFTA countries, the Commission considers it to be discriminatory and contrary to the EC Treaty which guarantees the free movement of capital.

The European Court of Justice has ruled in Verkooijen (Case C-35/98) that a different treatment of dividends according to their origin constitutes a restriction of the free movement of capital, guaranteed by Article 56 of the EC Treaty. In cases where the individual shareholder has control over the foreign company, the same difference in treatment constitutes a restriction of the freedom of establishment guaranteed by Article 43 of the EC Treaty.

The Commission sent a Reasoned Opinion to Greece on 18 October 2006 (IP/06/1410). Greece argued in its answer that the individual recipients of inbound dividends are entitled to an ordinary tax credit (i.e. tax paid abroad can be offset against the tax payable on foreign-source income) for any withholding tax effectively paid abroad. However, the Commission considers that, due to the progressivity of the individual income taxation, the credit method may lead to a higher taxation.

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).

The Commission's case reference number is 2006/4044.

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