ECJ Ruling Deals Blow To National Tax Sovereignty

by Ulrika Lomas, Tax-News.com, Brussels

15 September 2004

Ruling last Tuesday, the European Court of Justice (ECJ) struck a blow for the taxpayer when it ruled to allow a Finnish investor to collect a tax credit in his home country for a dividend received from an overseas firm.

Under Finnish tax law, foreign dividends do not carry a tax credit, whilst domestic dividend payouts do. However, the ECJ announced that this was in contravention of European laws on the free movement of capital, and ruled to allow the taxpayer in question, Petri Manninen, to claim a 10% tax credit for the dividend paid out by a Swedish company.

Speaking to the LMG news service, head of KPMG's EU tax group in London, Chris Morgan, suggested that although the case related to an individual, there were likely to be ramifications for corporate taxpayers as well.

"The implications of the case are pretty huge - confirming the ECJ's position on the tax treatment of domestic and foreign dividends - which will be of financial benefit for both individuals and corporates throughout the EU, including the UK," he explained.

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