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Brussels, 7 May 2007

Direct Taxation: Commission asks 9 Member States for information on discriminatory taxation of dividends and interest paid to foreign pension funds

The European Commission has decided to send requests for information in the form of letters of formal notice to the Czech Republic, Denmark, Spain, Lithuania, the Netherlands, Poland, Portugal, Slovenia and Sweden about their rules under which dividend and/or interest payments to foreign pension funds (outbound payments) may be taxed more heavily than dividend and/or interest payments to domestic pension funds (domestic payments). The Commission doubts whether such higher taxation is compatible with the EC Treaty and with the EEA Agreement, as it may restrict the free movement of capital. The Member States involved are asked to reply within two months. A letter of formal notice is the first step of the infringement procedure of Article 226 of the EC Treaty.

"The European pension industry has complained about higher taxation of pension funds if they exercise their rights under the EC Treaty to invest across the border" said EU Taxation and Customs Commissioner László Kovács. "The Commission is taking these complaints seriously and has decided to start formal enquiries".

The higher taxation of foreign pension funds may result from the levying of withholding taxes on dividend and interest payments. Most Member States exempt their domestic pension funds from any corporation and/or income tax. In addition, they usually provide for exemption at source of any withholding tax on dividend and interest paid to domestic pension funds. Where there is no such exemption at source they normally apply a refund procedure, by which the pension fund can claim back the withholding tax. However, foreign pension funds may not qualify for the relief at source or the refund procedure. The result may be that the source state levies a higher tax on interest or dividends paid to foreign funds than on those paid to domestic funds.

If a Member State levies a higher tax from foreign pension funds this may dissuade these funds from investing in that Member State. Equally, it is likely to make it more difficult for companies established in that Member State to attract capital from these foreign pension funds. The higher taxation of foreign pension funds may thus be a restriction of the free movement of capital as protected by Article 56 EC and Article 40 EEA. The Commission is not aware of any justification for such a restriction.

The Commission notes that the ruling by the European Court of Justice in Denkavit, Case C-170/05 of 14 December 2006, on outbound dividends appears to confirm that higher taxation of outbound dividend and interest payments than of domestic dividend and interest payments is not in conformity with the Treaty freedoms.

Following up to the complaints it received, the Commission is still examining the situation in other Member States. This may result in the opening of further infringement procedures.


The Commission's Communication of 19 December 2003 (IP/04/25) on the taxation of dividends received by individuals provides an overview of issues related to dividend taxation.

For information on the pending infringement cases on outbound dividends paid to companies see IP/07/66.

The Commission has no estimate of the amounts of tax revenue at stake. They may vary from Member State to Member State, depending on the Member States' tax rules and depending on how much cross-border investment by pension funds it has attracted.

The Commission's cases reference numbers are 2006/4102 (Czech Republic), 2006/4103 (Denmark), 2006/4106 (Spain), 2006/4095 (Lithuania), 2006/4108 (Netherlands), 2006/4093 (Poland), 2006/4104 (Portugal), 2006/4105 (Slovenia), 2006/4107 (Sweden).

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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