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Brussels, 19 March 2009

Direct Taxation: The European Commission refers Germany to the European Court of Justice over its discriminatory taxation of outbound dividends

The European Commission has decided to refer Germany to the European Court of Justice for its tax provisions concerning outbound dividend payments to companies. Germany taxes dividends paid to foreign companies more heavily than dividends paid to domestic companies. The Commission considers the higher taxation of outbound dividends to be contrary to the EC Treaty and the EEA Agreement, as it restricts the free movement of capital and the freedom of establishment provided for in Article 56 of the Treaty and Article 40 of the EEA Agreement.

Outbound dividends are those paid by a German company to a foreign shareholder, while domestic dividends are those paid by a German company to a German shareholder.

The German tax rules may lead to outbound dividends being taxed at a higher rate than domestic dividends. While there is a tax exemption for domestic dividends, outbound dividends are subject to withholding taxes of up to 25% (plus solidarity surcharge).

The discrimination concerns outbound dividends paid to EU Member States and to those EEA/EFTA countries which provide appropriate assistance (i.e. exchange of information).

In the Denkavit ruling of 14 December 2006 (Case C-170/05) the Court confirmed the principle that outbound dividends may not be subject to higher taxation in the source State (i.e. the State from where the dividends are paid) than domestic dividends.

Given that the German tax rules were not amended to comply with the reasoned opinion sent to Germany in June 2007 (IP/07/1152), the Commission has decided to refer the case to the Court of Justice.

The Commission's case reference number is (2004/4349).

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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