Finnish ECJ Ruling Deals Blow To National Tax Authorities

by Ulrika Lomas, Tax-News.com, Brussels

09 September 2004

The European Court of Justice has ruled that a Finnish taxpayer is entitled to receive the same tax credit on dividend income from a foreign company as that received from Finnish companies - a judgement likely to further erode the powers of national tax authorities in favour of the EU.

In Tuesday’s ruling, a panel of 11 justices agreed with Finnish taxpayer, Petri Mikael Manninen, who argued that he was entitled to the same tax credits on dividends from a Swedish company as those received under Finnish domestic law.

According to the Justices, Finland’s opposition amounted to discrimination and hindered the free movement of capital within the EU, as enshrined in the EC Treaty.

Similar tax credits also exist in other EU countries such as the United Kingdom and France, meaning that the ruling will no doubt have ramifications beyond the Scandinavian member states.

The ECJ has made dozens of similar judgments over the last two decades and European tax law experts are observing how the Court is increasingly usurping the role of national governments in the setting of EU tax policy.

"In the absence of a European tax policy, the Court is being left to create tax policy on a piecemeal basis," one Brussels-based expert revealed in a Dow Jones Newswire report.

Still, the tax man’s loss is the taxpayer’s gain, and Adam Craig, head of the EU tax practice at Deloitte in the UK, told Accountancy Age.com that people should seek to take advantage of the ruling.

“UK individuals with foreign source dividend income should now review their position, and where appropriate file for a tax credit rather than pay a higher tax rate on the income from foreign shares,” he explained.

“Tax payers will be able to make claims retrospectively for the last 6 years, and perhaps further if they act quickly,” added Mr Craig.

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