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Brussels, 22 January 2007

Direct taxation: The Commission decides to refer Belgium to the Court over discriminatory taxation of inbound dividends

The European Commission has decided to refer Belgium to the European Court of Justice for its discriminatory taxation of dividends paid by foreign companies to Belgian private investors (inbound dividends). Under the Belgian tax system, there is no double taxation for domestic dividends while there is for inbound dividends. The Commission considers that this difference in treatment is contrary to the freedom of establishment and the free movement of capital, guaranteed by the EC Treaty.

Inbound dividends are dividends paid by a foreign company to a resident shareholder. Domestic dividends are dividends paid by a resident company to a resident shareholder.

Belgian private investors receiving domestic dividends either pay a final tax withheld by the company or they are taxed at a special income tax rate of, in principle, 25%. Inbound dividends are first subject to a withholding tax of up to 15% in the source State on the basis of the double taxation agreement between Belgium and that State, and then suffer Belgian income tax at the special income tax rate of 25% without getting a credit for the foreign tax. The result is that inbound dividends are taxed more heavily than domestic dividends.

The higher tax burden is a restriction in the sense of Article 56 of the EC Treaty. In so far as the shareholding gives the shareholder control over the company it is also a restriction of the freedom of establishment of Article 43 of the EC Treaty. The same is true for the corresponding articles of the EEA Agreement.

According to the Commission the EC Treaty obliges the Member States to apply the same system that they use to avoid double taxation on domestic dividends to inbound dividends.

When drafting the application to the Court, the Commission will take into account the ruling by the European Court of Justice in Kerckhaert-Morres, case C-513/04.

The Commission had sent a Reasoned Opinion to Belgium on 20 July 2006 (IP/06/1045), but Belgium gave a negative answer.

The Commission's case reference number is 2005/4504.
For the press releases issued on infringement procedures in the taxation or customs area see:
For the latest general information on infringement measures against Member States see:

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