ECJ Advocate General Deems German Tax Dividend Policy Illegal

by Ulrika Lomas, Tax-News.com, Brussels

11 November 2005

An advisor to the European Court of Justice has stated that a tax break favouring dividends from German companies over those from companies based in other member states of the European Union is in breach of European law.

According to Advocate General Antonio Tizzano, German tax legislation limiting a tax credit to dividends distributed by companies established in Germany discourages persons who are resident for tax purposes in that state from investing their capital in companies whose registered offices are in other member states.

Mr Tizzano also argued that the law in question makes it more difficult for such companies to raise capital in Germany and for these reasons, restricts the free movement of capital within the EU.

The case refers to Mr Meilicke, a German citizen residing in Germany and holding shares in Dutch and Danish companies, who between 1995 and 1997, received dividends from those companies.

In 2000, the heirs of Mr Meilicke, who had died in the meantime, unsuccessfully applied to the German authorities for the tax credit to be applied to those dividends. The case was then referred to the ECJ which sought to establish whether the German tax law impeded the free movement of capital.

While the opinions of Advocates General are not binding on the ECJ, the court has endorsed their findings in 80% of cases.

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