EU To Investigate Member States' Dividend Tax Rules

by Ulrika Lomas, Tax-News.com, Brussels

12 January 2004

The European Commission has threatened to take member states to the Court of Justice if they fail align their dividend tax rules with that of the EC Treaty, the governing body revealed last week.

“Member States cannot levy higher taxes on dividends from companies in other Member States than on domestic dividends and, similarly, they cannot levy higher taxes on outbound dividends than on domestic dividends,” the Commission said in a statement.

“If Member States cannot agree on solutions, the Commission will be obliged to initiate legal action against those Member States whose dividend tax rules do not comply with the Treaty,” warned the EU’s executive body.

Meanwhile, Taxation Commissioner Frits Bolkestein commented: "Citizens investing in foreign companies are entitled to the same tax treatment as citizens investing in their own country and, likewise, dividends paid to non-residents cannot be taxed at a higher level than dividends paid to residents".

"The Commission will do whatever it takes to ensure that Member States respect these simple rules", he added.

Brussels plans to discuss the findings of a Communication it has adopted with member states, and the Commission has revealed that it favours a co-ordinated strategy to ensure that national rules on dividend taxation are compatible with Community Law.

However, the Commission stressed that this is not an attempt to harmonise dividend tax across the union, and member states will remain free to determine their own rates of taxation.

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