APPENDIX 6 - European Commission | Choose your …ec.europa.eu/taxation_customs/sites/taxation/files/...0.40% per month; For insufficient or incorrect return: application of the late

APPENDIX 6 SURVEY DATA | 11 OCTOBER 2011

Deloitte

Study on the impact of several alternative solutions to the double taxation problems

presented by source country withholding taxes on cross-border dividends paid to in-

dividual and portfolio company investors within the EU

Country: France

I. General - Investor categories

The study must address the taxation of dividends paid by a publicly listed company to the following cate-

gories of investors who are all assumed to be based in an EU member state:

1. Individuals with shareholdings below or above 10% of the capital of the distributing company.

2. Non-financial companies with shareholdings below 10% of the capital of the distributing company.

3. Life insurance companies with shareholdings below 10% of the capital of the distributing company.

4. Pension funds with shareholdings below 10% of the capital of the distributing company.

5. Collective investment vehicles (CIVs) with shareholdings below 10% of the capital of the distributing

company. The term “CIV” covers vehicles: (i) with or without legal personality; (ii) which are recog-

nized as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially

exempt from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS

Directive (Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual

funds, ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or spe-

cial investment funds).

II. Outbound dividends - Source state taxation

A. Taxation of CIVs and pension funds

Is a nonresident pension fund or CIV of

another EU member state treated as a

separate entity for domestic tax pur-

poses? Please explain

Yes, the French tax authorities (FTA) do not accept the tax trans-

parency as detailed below.


another EU member state eligible for

tax treaty benefits on its own behalf,

e.g. reduced WHT on dividends?

Please explain.

See paragraphs 6.9-6.14 of the 2010 OECD

Model; and paragraphs 22-30 of The Granting of

Treaty Benefits with respect to the Income of

Collective Investment Vehicles (Paris: OECD,

2010).

Further to a Supreme tax Court decision (Diebold Courtage dated

October 13 1999), the FTA modified its position on outbound

payments to tax transparent entities (March 29, 2007). According

to these guidelines, members (not the partnership itself) of foreign

tax transparent partnerships may benefit from the tax treaty en-

tered into between France and the State in which they are resi-

dent on French-source passive income received though the part-

nership. However, the FTA clearly excluded UCITs or pension

funds from the scope of its guidelines. Even if there are good

arguments to support that the position of the FTA should also

apply to UCITs or pension funds, the FTA’s current position is to

consider that pension funds and CIV are not eligible for treaty

benefits (unless if specifically provided by a treaty).

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Is a nonresident CIV, which qualifies for

treaty benefits, viewed as the beneficial

owner of dividends? Please explain.

See paragraphs 31-35 of The Granting of Treaty

Benefits with respect to the Income of Collective

Investment Vehicles.

N/A

Do tax treaties concluded with the other

EU member states contain specific rules

on pension funds and CIVs? If yes,

please explain.

Special provisions may be included.

Regarding CIVs, the Double Tax Treaties with Germany, Spain,

Sweden, Austria and UK provide the application of the reduced

rate of WHT limited to the percentage of shares held by resident

of the CIVs country.

B. Domestic withholding tax

What are the WHT rates under domes-

tic tax law on dividends paid by resident

companies to resident investors and

nonresident investors of other EU

member states per category?

Resident Nonresident

Individuals NA 19%

Non-financial companies NA 25%

Life insurance companies NA 25%

Pension funds NA 15%

CIVs: NA 25%

Are reductions or exemptions from WHT

provided under domestic law for non-

residents? To which categories of inves-

tors do they apply? What are the condi-

tions that have to be fulfilled?

Some domestic law or guidelines provide WHT exemption:

European freedom of movement - French Administrative

Guidelines (BOI 4 C-7-07 and BOI 4 C-8-07):

o The companies or other entities must have their

head office of effective management in EU State

plus Norway and Island

o Subject to CIT at the standard rate

o 5% minimum capital holding for a minimum of

two years

o Do not have the opportunity to deduct the WHT

that would be due in France

EU directives - Article 119 ter of the FTC:

o The companies or other entities must be subject

to CIT at a normal rate

o Holding company must be the beneficial owner

o Head office of effective management in EU State

o Holding company must be a corporation

o 10% minimum capital detention for a minimum of

two years (or a commitment to hold the shares

for a minimum of two years + French tax repre-

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sentative).

Is WHT calculated on a gross income or

net income basis?

Article 48 of the Appendix 2 of the French Tax Code (« FTC »)

provides that the WHT is levied on gross income of dividend.

Is the taxation of dividends for domestic

life insurance companies, pension funds

etc. reduced because they are entitled

to deduct from their tax base payments

to and provisions made for the obliga-

tion towards policyholders etc.? (in

some Member States dividends paid to

life insurance companies etc. are sub-

ject to withholding tax and the dividends

are included in the corporate tax base of

the company, but no corporation tax is

effectively paid on the dividends be-

cause of tax deductible provisions etc.).

Pension funds and life insurance companies are allowed to de-

duct provisions as long as they meet the conditions of deductibili-

ty.

If the effective taxation of domestic life

insurance companies etc. is reduced as

described above, do similar entities

established elsewhere in the EU get

national treatment, that is, are they enti-

tled to claim back the domestic with-

holding tax based on a calculation of

their net income (dividends, less pay-

ments to and provisions for future liabili-

ties)?

No.

If a WHT is applicable to dividends paid

to resident investors, is the dividend

included in the taxable income of the

resident investors, and is the WHT off-

set against the final tax liability. Is a

refund of WHT made if the WHT ex-

ceeds the final tax liability?

N/A

In which cases is the levying of with-

holding taxes under domestic tax law in

your opinion contrary to the Treaty on

the Functioning of the European Union

(TFEU)? In this respect please consider

The Aberdeen case (CJCE, June 18, 2009, C-303/07), Aberdeen

Property Fininvest Alpha Oy) has stated that articles 43 EC and

48 EC must be interpreted as precluding legislation of a Member

State which exempts from withholding tax dividends distributed by

a subsidiary resident in that State to a share company resident in

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if any tax provisions applicable solely to

residents mean that their effective tax

rate on dividends is significantly re-

duced. Please provide the text of the

relevant legal provisions.

that State, but charges withholding tax on similar dividends paid

to a parent company in the form of an open-ended investment

company (SICAV) resident in another Member State which has a

legal form unknown in the law of the former State.

Such a difference in tax treatment of dividends between parent

companies based on the place where they have their seat consti-

tutes a restriction of freedom of establishment, prohibited in prin-

ciple by Articles 43 EC and 48 EC, in that it makes it less attrac-

tive for companies established in other Member States to exer-

cise freedom of establishment and they may, in consequence,

refrain from acquiring, creating or maintaining a subsidiary in the

Member State which applies such different treatment.

The article 119 bis of the French Tax Code provides a WHT for

non-resident whereas French residents are not subject to WHT.

(See more details in Appendix 3).

C. Withholding agent

Is the withholding agent the company

itself or a financial intermediary?

Both can be withholding tax agent

In the case of a financial intermediary,

does it need to be a resident entity? If

so, what is the provision of the law that

prohibits the use of foreign intermediar-

ies?

No

Who is liable in case of noncompliance

with the withholding tax obligation?

What standard of liability is applied?

The company paying the dividends or the paying agent, if any, is

liable in case of noncompliance with the withholding tax obliga-

tion.

In such a case, the penalties are as follows:

For late payment: application of a penalty of 5% of thesum due in addition to the late payment interest, com-puted at a rate of 0.4% per month;

For late filing and late payment or for lack of filing: appli-cation of a penalty of 10% (40% in case of non-filing inthe 30 days after a formal notice) of the sum due in addi-tion to the late payment interest, computed at a rate of0.40% per month;

For insufficient or incorrect return: application of the latepayment interest, computed at a rate of 0.4% per monthplus a potential penalty of 40% of the sum due in case ofdeliberate disregard (80% in case of fraud or abuse oflaw).

For payment not by bank transfer: application of a 0.2%penalty on the sums not paid by bank transfer.

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D. Relief for juridical double taxation for nonresidents

What are the WHT rates for nonresi-

dents on portfolio dividends under tax

treaties with other EU member states?

See appendix 1

Is a nonresident CIV, which disqualifies

for treaty benefits because it is not

treated as a “person” or as a “resident”,

entitled to a reduced treaty rate on be-

half of its investors? In the affirmative, it

would not be necessary for each indi-

vidual investor of a CIV to submit its

own request for treaty benefits. If yes,

please explain. E.g. does it matter

whether the investors of the CIV are

resident in the same member state as

the CIV or in other member states (tri-

angular situation), whether the CIV is

publicly listed, etc.?

No except if specifically provided in a treaty as explained in IIA

above (such as the French / German tax treaty)

Regarding CIVs, the article 25 B 4° of the Double Tax Treaty

between France and Germany provides the application of the

reduced rate of WHT limited to the percentage of shares held by

resident of the CIVs country:”Undertakings for collective invest-

ment in transferable securities (UCITS) located in one Contract-

ing State where they are not subject to the tax referred to in Arti-

cle 1 paragraph (2) 1.c) or paragraph (2) 2. b.), and which receive

dividends or interest resulting from a source in the other Contract-

ing State, may globally apply for the tax reductions, exemptions

or other deductions referred to in the Convention for that portion

of such income corresponding to the rights held in the UCITS by

the residents of the first-mentioned State.”

In a situation, where a nonresident CIV

does not qualify for treaty benefits and it

is not entitled to a reduced rate on be-

half of its investors, are the individual

investors of the CIV in fact requesting a

WHT reduction, or do practical issues

prevent this from happening?

Depending on the number of investors, practical issues may

arise.

Is the relief from WHT applied at source

or by means of a refund procedure?

For CIV, the relief from WHT is achieved by a refund procedure.

In other case, relief at source is applicable.

E. Relief at source procedure for nonresidents

If withholding tax relief is provided at

source, please explain how the proce-

dure works and what the roles are of the

different actors involved.

The debtor is expected to liquidate withholding tax due filing form

2777 and to pay the corresponding tax to the French Revenue (if

any) no later than the 15th day of the month following the pay-

ment of the dividends. To benefit from the reduced rate (or the

exemption), the forms 5000 and 5003 must be received prior to

the dividends’ payment. Only one form 5000 must be submitted

for the year but a form 5003 must be submitted before each pay-

ment (each month).

Do different relief at source procedures

apply depending on the investor and/or

Same procedure

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type of reduction, i.e. whether provided

by tax treaties or domestic law.

What kind of documentation must be

provided by the investors to obtain WHT

tax relief at source? Please distinguish

between domestic and treaty relief if the

required documentation is different.

For treaty relief,

forms filed by (a) the recipient, i.e. form 5000 named “Cer-

tificate of residence” and form 5001 and;

(b) the debtor, i.e. form 2777.

How often must a nonresident investor

document to be eligible for tax treaty

benefit? E.g. once a year, upon each

distribution, etc.

Once a year.

F. Refund procedure

Is a refund made by the tax authorities

or the withholding agent?

Tax authorities.

At what time may an investor apply for a

refund? E.g. upon declaration or receipt

of dividend, year end, specific date, etc.

Immediately upon payment of undue WHT..

Are financial intermediaries allowed to

submit refund claims on behalf of their

investors? If yes, under which condi-

tions?

Person acting on behalf of the claimant, provided that he provides

the FTA with a copy of the agency contract that he entered into

with the claimant.

Are there standardized forms to be used

to submit a refund claim?

No

Is there a central office within the tax

administration which handles all refund

claims?

If the claimant is a French resident, the claim is sent to its tax

office. If the claimant is a non-resident, the claim is sent to the

nonresident tax office.

Is there a deadline for claiming a re-

fund? In the affirmative, is the deadline

the same as the ordinary statute of limi-

tation?

Are the deadlines the same for domes-

tic and cross-border dividends? If not,

specify the articles of the law giving rise

to the difference in deadlines.

Normally, deadline to reclaim WHT is 31 dec of the year following

payment (i.e. WHT paid in 2010 can be reclaimed until 31 Dec

2011).

Based on Aberdeen case law, we try to support that an extended

reclaim period is applicable i.e. WHT suffered between January

2006 and December 2009 (in that case, the claim must be filed

before December 31, 2011).

For nonprofit organizations, the reclaim must be filed before De-

cember 31, 2011 regarding the WHT suffered between January

2006 and December 2009.


provided by the investors in order to

obtain a refund? Please distinguish

For treaty relief,

forms filed by (a) the recipient, i.e. form 5000 named “Cer-

tificate of residence” and

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form 5001 and (b) the debtor, i.e. form 2777.

The signed version of these documents should be joined to the

claim (compulsory requirements).

For a reclaim based on infringement of EU principles (i.e. Aber-

deen case)

Forms 2777 and dividend tax vouchers for each distribu-

tion;

A certificate of residence certifying that the UCIT is under

the EU directive ;

Dividend information summarized in an excel worksheet ;

Prospectus and Supplementary Prospectuses.

For nonprofit organization (pension funds),

Completed questionnaire for confirmation of pension fund

status ;

Copy of by-laws, constitutional documents, prospectuses

and/or description of the legal characteristics of the pen-

sion fund;

Copy of the minutes of the shareholders meetings, the de-

tail of the main expenses and income, the payroll of the

directors and the financial statements;

Tax vouchers;

Forms 2777 or a certificate issued by the paying agent evi-

dencing the amount of WHT paid ;

Details on dividends receivedo Name and address of the distributing companyo Number of shares heldo Class of shares (if relevant)o Date of the dividend paymento Gross dividendo Tax withheldo Dividend net of taxo Name and address of the paying agent

Certificate of tax residency covering the relevant years ofreclaim.




distribution, each request, etc.

Once a year.

How long does it usually take to obtain

a refund?

It depends (from a couple of months for treaty reliefs to several

years in case of reclaims)

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Are there any direct costs, duties, etc.

associated with claiming a refund other

than costs to professional service pro-

viders?

No

If a financial intermediary makes a re-

fund claim on behalf of the investor,

what is the approximate amount of fees

that will be charged?

No standard fees

Is an investor entitled to interest on a

refund? If yes, please explain.

Yes in case of an administrative reclaim (eg based on the Aber-

deen case law).

G. Relief for economic double taxation

Which corporate tax system is applica-

ble? E.g. (i) classical, (ii) schedular

(single, multiple, half-income), (iii) impu-

tation, or (iv) exemption.

See paragraph 2.2 in COM(2003) 810 final.

France has shifted from an imputation system to a (single)

scheduler system, that is taxation at both the level of the com-

pany and the shareholder, but the taxation of the shareholder is

reduced compared to ordinary taxation (either 19% tax rate or

40% exemption).

Is the corporate tax system applied

identically for resident and nonresident

taxpayers per investor category with

respect to dividends from a resident

company? Please explain.

No. The tax rates applied to resident and non-residents are not

identical.

H. Exchange of information

Is exchange of information made with

other EU member states regarding

payment of dividends?

Yes

In the affirmative, are information pro-

vided automatically, on request, or

spontaneously?

On request

III. Inbound dividends - Residence state taxation

A. Taxation of CIVs

Are resident CIVs treated as separate

entities for domestic tax purposes?

There are two types of French CIV: SICAV and FCP. SICAV are

not treated as transparent. FCP are co-ownership of assets and

could be considered as tax transparent.

How is tax neutrality achieved between

direct investments and indirect invest-

ments through CIVs?

Entity CIV level Investor level

SICAV Exemption of cor-

porate income tax

Taxation of divi-

dends

FCP Exemption of cor-

porate income tax

Taxation of divi-

dends

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Does the taxation of CIVs depend on

whether the investors are resident or

nonresident?

No

B. Taxation of investors

What is the overall domestic tax burden on divi-

dends applicable to resident investors per cate-

gory?

Individuals: Dividends are assessed to incometax at the progressive income tax rates (themarginal tax rate amounts to 41%). However,resident individual shareholders are entitled toan allowance equal to 40% of the dividends. Inaddition, resident individuals benefit annuallyfrom a tax-free allowance (€ 1,525; double forcouples). However, resident individuals have anoption to subject the full amount of dividends to afinal levy at a rate of 19% (31.3% with the 12.3%social taxes).

Companies: under certain conditions, the divi-dends could benefit from the exemption (plus the5% lump sum) provided by the parent-subsidiaryregime, if it is not the case, the dividends aresubject to the CIT at standard rate (i.e. 34.43%maximum).

Pension funds / non for profits : 15% CIV (SICAV/FCP): 0%

Is the taxation of investors per category identical

whether dividends are received from resident

companies or nonresident companies of other

EU member states, and whether dividends are

received from resident CIVs or nonresident CIVs

of other EU member states? If no, please explain

and provide the text of the underlying legal pro-

visions.

Taxpayer Companies CIVs

Individuals yes yes

Non-financial com-

panies

yes yes

Life insurance com-

panies

yes yes

Pension funds yes yes

CIVs: yes yes

C. Relief for juridical double taxation

How is juridical double taxation caused by WHT

on portfolio dividends relieved under domestic

tax law (full credit, ordinary credit, matching

credit, exemption, deduction, etc.)?

Ordinary credit

If a credit method is applied in domestic tax law,

is the foreign tax credit calculated on an overall

basis, per country, per item, etc.?

The tax credit is calculated per distribution.


on portfolio dividends relieved under tax treaties

with the other EU member states?

See Appendix 2

In the case of the ordinary credit method, is the

credit calculated on the basis of the foreign

Gross income

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gross income or net income?

In case the basis is the net income, must for-

eign-source dividend be reduced by both ex-

penses, which may be attributable directly to

individual shareholdings, and expenses, which

may only be attributed indirectly between share-

holdings, such as portfolio management fees?

N/A

In the case of the ordinary credit method, may

excess credit be carried forward or backward?

No

Is a resident investor of a resident CIV, which is

treated as a separate entity for domestic tax

purposes, but which does not suffer any domes-

tic taxation on foreign dividends, entitled to a

foreign tax credit for WHT paid by the CIV?

Please explain.

See paragraph 42 of The Granting of Treaty Benefits with

respect to the Income of Collective Investment Vehicles.

A transfer of tax credit is possible

Is a resident investor of a nonresident CIV,

which is treated as a separate entity for domes-

tic tax purposes, but which does not suffer any

taxation in the residence state on foreign divi-

dends, entitled to a foreign tax credit for WHT

paid by the CIV? Please explain.



Yes a transfer is possible in theory, but difficult in prac-

tice.

Is a “refund” of foreign WHT granted to a CIV?


respect to the Income of Collective Investment Vehicles

N/A

Do you see any infringements of the TFEU in

the area of relief for juridical double taxation of

inbound dividends? If so, please explain and

provide the text of the underlying legal provi-

sions.

No

D. Relief for economic double taxation

Are the rules on relief for economic double taxa-

tion, if any, identical for portfolio dividends from

resident companies and nonresident companies

of other EU member states? For example, is an

indirect foreign tax credit granted for underlying

Yes.

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foreign corporate tax if a tax credit is granted for

underlying domestic corporate tax?

See above II.G.

In the case an indirect foreign tax credit is

granted, is it possible to carry forward or back-

ward an unused tax credit?

N/A

E. Parent-Subsidiary Directive

Is economic double taxation under paragraph 4.1

of the Parent-Subsidiary Directive (Council Di-

rective 90/435/EEC) relieved under the method

of ordinary credit or exemption? Is there any

difference in the treatment of domestic and

cross-border situations?

Exemption

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Appendix 1

Source state taxation: Outbound dividends

France

Withholding tax rates for portfolio dividends under domestic law and tax treaties

Recipient: Dom.

WHT

Dividends received by investor in:

Aus Bel Bul Cyp Cze Den Est Fin Ger Gre4 Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK

Individual 19 15 15 15 15 10 N/A 15 0 15 19 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15

Non-financial compa-

ny

25 15 15 15 15 10 N/A 15 0 15 25 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15

Life insurance 25 15 15 15 15 10 N/A 15 0 15 25 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15

Pension fund1 152 15 - - - - N/A - - - - - - - - - - - - - - - - - - - -

CIV, with legal

personality1

25 15 - - - - N/A - - 15 - - - - - - - - - - - - - - 15 15 153

CIV, without legal

personality1

25 15 - - - - N/A - - 15 - - - - - - - - - - - - - - 15 15 153

Comments:

1 The application of the treaty rate is subject to the analysis of the residence country regarding the beneficiary’s residence status.

2 Pension funds are subject to the 15% rate provided they are “not-for-profit” entities and would be subject to the tax regime pertaining to such entities if their head office was located in France.

3 CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV’s.

4 The treaty between France and Greece provides for the application of the domestic withholding tax rate in force in the source state.

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Appendix 2

Residence state taxation: Inbound dividends

France

Method for the elimination of juridical double taxation caused by WHT on portfolio dividends under domestic law and tax treaties

Recipient: Dom.

Metho

d1


Aus Bel Bul Cyp Cze Den Est Fin Ger Gre2 Hun Ire4 Ita Lat Lit Lu Mal Net Pol Por Rom Slo Slo Spa Swe UK

Individual DE OC OC OC OC OC N/A OC - FC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Non-financial compa-

ny

DE OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Life insurance DE OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Pension fund - OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC

CIV, with legal

personality

- OC - - - - N/A - - OC - - - - - - - - - - - - - OC OC OC3

CIV, without legal

personality

- OC - - - - N/A - - OC - - - - - - - - - - - - - OC OC OC3

Comments:

1 The French domestic tax law does not provide for a tax credit in relation to the WHT incurred in the source state. However, the amount of the said WHT is deductible for French tax purposes. Only the netdividend remains taxable.2 The tax credit is computed at the rate of the WHT applied on dividends in France under the same circumstances.3 CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV’s.4 No more WHT is applied on dividends distributed to France.

Notes: OC = ordinary creditMC = matching creditFC = full creditEx = exemptionIC = indirect credit for underlying corporate taxDE = deduction of the WHT from the basis subject to taxation in France

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Appendix 3

Explanation of infringement cases

I. Outbound dividends – source state – infringement on the TFEU by the domestic WHT

1. Gross basis taxation

N/A

2. Nonresidents are not covered by special tax regimes as residents

N/A

3. WHT rates

The Commission has today sent requests to Belgium, France, Greece, the Netherlands and Portugal to change various rules

related to direct taxation which are disproportionate and/or discriminatory and infringe upon the fundamental freedoms set

out in the Treaty of the Functioning of the EU (TFEU). The requests were sent in the form of Reasoned Opinions, the second

step in the infringement procedure (Art. 258 TFEU). If there is no satisfactory reaction from the Member States in question

within 2 months, the Commission may decide to refer the relevant matter to the Court of Justice (IP/10/300).

The Commission has formally requested that France change its tax rules which discriminate against foreign pension and

investment funds. Under these rules, dividends paid to foreign pension and investment funds (outbound dividends) are taxed

more heavily than dividends paid to domestic pension and investment funds (domestic dividends). A withholding tax of 25%

is levied on dividends paid to pension and investment funds in other Member States or EEA countries (this rate may be re-

duced by bilateral tax treaties), but no withholding or other tax is levied on domestic funds. The Commission considers this to

infringe the free movement of capital, as set out in the Treaty of the Functioning of the EU (TFEU) and the EEA Agreement.

However the amended French finance bill for 2009 has modified the French tax law and since January 1, 2010 there is no

more discrimination for pension funds which qualified as non-profit institution. The general WHT for dividends served to

French or non-resident NPI amounts to 15%.

4. Combined taxation v. separate taxation

N/A

II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for juridical double taxa-

tion

1. Per country limitation

N/A

2. Excess foreign tax credit

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N/A

3. Net principle and indirect cost allocation

N/A

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Study on the impact of several alternative solutions to the double taxation problems pre-

sented by source country withholding taxes on cross-border dividends paid to individual

and portfolio company investors within the EU

Country: Germany



















separate entity for domestic tax purpos-

es? Please explain

For foreign CIVs and pension funds, it has to be analyzed wheth-

er or not the foreign vehicle can be considered comparable to a

German corporate entity. Thus, foreign corporate-type funds (e.g.

SICAVs, Irish plcs etc.) can be considered separate corporate

entities for domestic tax purposes, whereas contractual funds,

such as, e.g. Austrian “Sondervermögen” cannot be considered

separate entities.

For the taxation of resident investors in a foreign CIV, the follow-

ing rules apply: The foreign vehicle is analyzed with regard to its

characteristics as a vehicle for the collective investment: if it is a

vehicle for the collective investment, that invests in certain assets

as listed in the Investment Act, follows the principles of risk diver-

sification and either provides for redemption of shares or is sub-

ject to supervision similar to the German supervision, the foreign

vehicle is considered a foreign CIV (“ausländisches Investment-

vermögen”) within the meaning of the German Investment Tax

Act (InvTA). E.g., mainly UCITS funds (independent of legal form)

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and real estate funds, that are collective investment vehicles, are

considered a foreign CIV, whereas vehicles that do not fall under

InvTA are not considered foreign CIVs for the purpose of taxation

of resident investors.

Please note that the fact that a vehicle is considered a foreign

CIV within the meaning of the InvTA is a question that has to be

answered independently from the question of whether or not this

vehicle is considered a separate corporate entity for domestic tax

purposes and the answer to neither one of these questions has

any effect on the determination of treaty benefits (see next ques-

tion).

For EC-law purposes (Denkavit-claims) we consider the compa-

rability to a German CIV to be decisive (i.e. comparable legal

entity and qualification under the Investment Act).





Please explain.





2010).

To determine whether a nonresident pension fund or CIV is eligi-

ble for treaty benefits, it has to be considered resident in the other

Contracting State. If the nonresident vehicle is not considered a

separate taxable entity in its state of residence, it cannot be eligi-

ble for treaty benefits due to the fact that it cannot be considered

a resident person within the meaning of the treaty. Thus, Germa-

ny would consider a foreign contractual funds not to be eligible for

treaty benefits if this funds is not considered a taxable entity in its

state of residence.

If the foreign vehicle is treated as a separate corporate entity in

its state of residence (e.g. a SICAV), it should in principle be con-

sidered eligible for treaty benefits unless it is not considered a

taxable subject in its state of residence.

Please note that this is a highly disputed area of tax law.







Yes.




please explain.

The treaty with UK provides for a reduced WHT rate for distribu-

tions made to pension funds (Altersvorsorgeeinrichtungen). Un-

der the treaty with France a French investment funds may claim

withholding tax relief based on the quota of French shareholders

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in the funds (Art. 25b para 4 DTC Germany/France).








Individuals 26.375% 26.375%

Non-financial companies 26.375% 26.375%

Life insurance companies 26.375% 26.375%

Pension funds 26.375% 26.375%

CIVs 26.375% 26.375%

Domestic WHT of 25% plus solidarity surcharge (5.5%) applies to

all dividends distributed by German companies.

Different treatment may apply to distributions from non-publicly

listed companies, which are not elaborated on in this question-

naire, due to the restriction in the scope to publicly listed compa-

nies.


provided under domestic law for nonre-

sidents? To which categories of inves-



Yes, non-resident corporate entities that are subject to limited

corporate tax liability are granted a refund of 2/5 of the tax with-

held (i.e. down to a rate of 15.825%, which equals the statutory

corporate income tax rate (incl. solidarity surcharge)). The refund

is granted upon application and is subject to the German anti-

treaty-shopping provision (§ 50d para. 3 EStG (Income Tax Code

– Einkommensteuergesetz)).


net income basis?

Gross basis.














Life insurance companies, pension funds etc. are taxed on the

dividends they receive (exemption does not apply, § 8b para. 7, 8

KStG (Corporate Income Tax Code – Körperschaftsteuergesetz)).

They are, however, allowed to deduct payments and provisions

from their taxable base, significantly reducing their taxable in-

come. The German WHT on dividends paid to these institutions is

creditable against their final tax liability (and may ultimately be

refunded if the credit is in excess of the final tax liability).

This treatment does not apply to Pensionskassen (which are tax

exempt) and Altersvorsorge-Sondervermögen (which are treated

as CIVs and are also tax-exempt).



No.

For non-residents, WHT is final tax burden and WHT is levied on

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national treatment, that is, are they en-

titled to claim back the domestic with-




ties)?

gross income. Payments and provisions may only be deducted if

non-resident life-insurance company etc. has a permanent estab-

lishment in Germany and dividends are effectively connected with

this permanent establishment.








Individuals: A schedular system of taxation applies to individuals,

i.e. capital income, including dividends is taxed at gross basis and

a rate of 26.375% (plus church taxes if applicable). Thus, WHT

levied at source is the final tax burden unless the individual

proves that he is subject to a lower marginal tax rate (in which

case a refund would be possible).

Regular Corporations: Dividends received by corporations are

exempt from corporate income tax (§ 8b para. 1 KStG). 5% of

deemed non-deductible expenses are subject to tax (§ 8b para. 5

KStG). WHT is creditable against final tax liability, including the

possibility of a refund. Dividends may be subject to municipal

trade tax (at a rate of ~7% to ~17%, depending on municipality),

but WHT is not credited against trade tax.

Financial Investors (1): Life and Health Insurance companies and

Pensionsfonds – as well as other companies holding the shares

as current assets (“held-for-trading exception”) – are taxed on the

dividends they receive (exemption does not apply, § 8b para. 7, 8

KStG (Corporate Income Tax Code – Körperschaftsteuergesetz)).

Life and Health Insurance companies as well as Pensionsfonds

are, however, allowed to deduct payments and provisions from

their taxable base, significantly reducing their taxable income.

Other companies to which the held-for-trading exception applies

may deduct expenses incurred in relation to the dividends re-

ceived. The WHT on dividends paid to these institutions is credit-

able against their final tax liability, including the possibility of a

refund.

Financial Investors (2): Pensionskassen are exempt from tax.

They are granted a partial refund of 2/5 of tax withheld (i.e. down

to 15.825%)

CIVs: CIVs are exempt from tax. They may receive a full refund of

any tax withheld on dividends distributed to the CIV.

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Individuals: An infringement might occur if a foreign individual

with very low income would be taxed at a higher rate than a Ger-

man individual as only the latter may opt for the application of his

marginal tax rate. (We do not see this type of cases in practice.)

Regular Corporations: Infringement of fundamental freedoms as

only domestic corporations are granted the tax exemption on

dividends (i.e. effective corporate income tax rate on dividends is

0% (0.79125% taking deemed non-deductible expenses into ac-

count)). In our view, trade tax should not alter this view, as (1) it

requires a domestic trade or business as trade tax is a municipal

business tax, (2) WHT is not credited against trade tax.

Financial Investors (1): Foreign Life Insurance companies and

Pensionsfonds are discriminated against due to the fact that they

are taxed on a gross basis and are not allowed to deduct ex-

penses and provisions etc. even where these expenses and pro-

visions can be shown to be linked to German source dividends.

The same should apply to other companies which are taxed un-

der the held-for-trading exception if they incur expenses in the

relation to the shares (e.g., write-down to the lower FMV).

Financial Investors (2): Pensionskassen are currently not discri-

minated against if the foreign Pensionskasse is able to obtain

treaty refund or domestic refund (among other things meaning

that German the anti-treaty-shopping provision does not apply).

For years prior to 2008, a discrimination may exist.

CIVs: In our view, CIVs are discriminated against as a domestic

CIV would not be taxed on the German dividends received.




Until 2011 the company.

Starting 2012 the financial intermediary.




prohibits the use of foreign intermedia-

ries?

As from 2012 on:

Yes, only German financial intermediaries are required to with-

hold WHT.

If no German financial intermediary is used, the company itself or

any other German entity that transfers the money outside Ger-

many (in general Clearstream) is required to withhold WHT on the

payment.




Generally both, the investor and the withholding agent/company.

The obligation is triggered if the company has exercised intention

or gross negligence.

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15%

Some treaties: 10%















The fund can apply “on behalf” of all of its investors, on the basis

of the treaty applicable to each investor, provided the funds is

given a power of attorney to claim WHT on behalf of its investors

by each investor.

In practice, tax authorities accept a reclaim filed by the fund itself

to the extent investors in the funds are resident in the same con-

tracting state as the fund.








No.

The individual investor would have to provide the funds with a

power of attorney and with a certificate of a German bank certify-

ing the amount of deducted WHT. The procedure to receive such

certificate is too complicated and too expensive.



Relief is granted by a refund procedure on application only.

Relief at source is available for Parent-subsidiary-directive situa-

tions and for certain tax treaty situations in case of qualifying

shareholdings only (i.e. shareholding of at least 10% and mini-

mum holding period of 12 months needed), see below.






Note: Only applies to cases where a corporate entity which is

subject to tax (and not exempt) holds a minimum direct share of

10%. They do not apply for claims based on an infringement of

EU-law. No procedural rules have been published for these

claims, i.e. a very high degree of uncertainty exists as to how to

deal with these claims.

The shareholder may apply for an exemption certificate at the

Federal Tax Office (Bundeszentralamt für Steuern – BZSt) before

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the distribution is made. The BZSt decides on the application

within three months after the application is lodged and all neces-

sary documents have been presented to the BZSt. Usually, the

BZSt will require extensive documentation to analyze if the Ger-

man anti-treaty-shopping provisions apply.

If the BZSt issues such an exemption certificate (or partial ex-

emption certificate in case of treaty reduction to e.g., 5% WHT)

and the shareholder presents this certificate to the distributing

entity, the tax may be withheld at the lower rate.

The certificate may be subject to repeal or be subject to additional

requirements and conditions. The certificate is valid for a period

between one and three years (usually three years) and the

shareholder is obliged to notify the BZSt of any factual changes

that may be of relevance during this period.





Yes. Please note that in domestic cases, relief at source is only

possible in very limited circumstances and only for dividends from

non-publicly listed companies; for dividends from publicly listed

companies, no relief at source is possible in domestic situations.

Where such relief at source is possible in domestic situations, the

procedure differs slightly depending on the reason for the (partial)

exemption, e.g., in domestic situations, anti-treaty-shopping pro-

vision is not tested and in domestic situations, exemption certifi-

cate is provided by the local tax office responsible for the tax ex-

empt entity and not by the BZSt.






Domestic: Documentation to prove that entity is tax exempt

(usually already present at the competent local tax office)

Foreign: Certificate of residency of the shareholder, certificate on

the shareholder (acquisition, percentage of shareholding), infor-

mation on the local tax office competent for the distributing entity),

possibly information on the anti-treaty-shopping provision (varies,

can include balance sheets, P&L statements of the shareholder,

proof of existence of office space, telephone bills, information on

directors, etc.)




distribution, etc.

In case of an exemption certificate: at least every three years

(generally set forth in the exemption certificate).

F. Refund procedure

Is a refund made by the tax authorities For non-residents: tax authorities (Federal Tax Office).

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or the withholding agent? Residents: Usually tax authorities (as the credit/refund is granted

in the course of the tax assessment). In certain situations (e.g.

shares in listed stock companies held in a custodian account by

individuals, investment funds and tax exempt investors that can

provide an exemption certificate), refund is made directly by the

withholding agent/custodian bank.




Resident corporate investors: In the course of assessment only

(certain exceptions may apply, see above).

Nonresidents: Upon receipt of the dividends (issue of a tax certifi-

cate).




tions?

Residents: Where refund is granted (see above for exception),

withholding agent directly refunds excess WHT.

Nonresidents: Only on an individual basis as representative of the

investor.



Yes



claims?

Yes: for foreign investors: Federal Tax Office (BZSt). For resident

investors, the competent tax office depends on the reason for the

refund.

Please note that tax authorities argue that the Federal Tax Office

is not competent where foreign investors claim a refund on the

grounds of an infringement of EU-law. For these types of refund

claims, the procedural situation is completely unclear as there is

neither a central tax office handling the reclaims nor is there a

clear guidance as to which tax offices can be considered compe-

tent for these refund reclaims. In practice, this means that foreign

investors relying on the fundamental freedoms to obtain a refund

have to file reclaims with a very high number of potentially com-

petent tax offices to ensure that the reclaims are filed with the

correct tax office.




tation?





Yes.

The deadline is not technically the same, but usually in fact the

deadline is the same as the ordinary statute of limitation: a refund

of WHT under a treaty or directive has to be filed within four years

after the end of the calendar year in which the dividend was re-

ceived.

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Dividend vouchers

Non-residents: residency certificate (certified on official forms),

evidence of percentage of shareholding (if qualifying sharehold-

ing), anti-treaty-shopping questionnaire (see above)





Upon each request, anti-treaty shopping: usually once and upon

relevant changes


a refund?

For regular refunds for non-residents under double tax treaties,

the procedure can be estimated to take 6 months.

Resident taxpayers receive a “refund”/credit when their annual

tax return is assessed and the WHT is credited against their final

tax liability (see above for exceptions/direct refund by withholding

agent).




viders?

No.





We have no information on this



No, only for refund of WHT unduly withheld under the Interest and

Royalties Directive but not for refund of WHT on dividends.







Schedular system: individuals are taxed on dividends at a flat rate

of 26.375% (see above); if the shares are held as business as-

sets, 60% of dividends are taxable at ordinary (progressive) rates,

with effective tax rated being roughly the same.

Inter-corporate dividends are exempt from corporate income tax

(see above), with a 5% add-back of deemed non-deductible busi-

ness expenses.






No: for resident corporations, they can credit any WHT on their

final tax liability, even if dividend is tax exempt (see above). Indi-

viduals may demonstrate that their tax burden is lower than the

26.375% dividend withholding tax.

For non-residents, WHT is a final burden, no assessment is poss-

ible, they are not granted any exemptions and cannot deduct any

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costs incurred.





Yes.



spontaneously?

We have no information on this, but in principle, information is

exchanged spontaneously under the Savings Directive, whereas

information on dividends should only be provided on request.


A. Taxation of CIVs



Yes.



ments through CIVs?


CIVs The CIV may ei-

ther show the

foreign WHT in its

documentation

(see investor level)

or deduct foreign

WHT, resulting in

a reduction of

income attributable

to the investors.

The investor may

claim an ordinary

credit of foreign

WHT against his

own income tax

liability if WHT de-

duction is certified

by the CIV.

If investing directly,

the investor would

also be able to claim

an ordinary credit of

foreign WHT.



nonresident?

No.




gory?

Individuals: A schedular system of taxation applies to

individuals, i.e. capital income, including dividends is

taxed at gross basis and a rate of 26.375% (plus church

taxes if applicable). Thus, foreign WHT is creditable up

to the German tax rate (ordinary credit).

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Regular Corporations: Dividends received by corpora-

tions are exempt from corporate income tax (§ 8b para. 1

KStG). 5% of deemed non-deductible expenses are sub-

ject to tax (§ 8b para. 5 KStG). Foreign WHT is not cre-

ditable as no German corporate income tax is levied on

foreign dividends. Dividends may be subject to trade tax,

however.

Financial Investors (1): Life and Health Insurance com-

panies and Pensionsfonds (as well as companies to

which the held-for-trading exception applies) are taxed

on the dividends they receive (exemption does not apply,

§ 8b para. 7, 8 KStG (Corporate Income Tax Code –

Körperschaftsteuergesetz)). They are, however, allowed

to deduct payments and provisions from their taxable

base, significantly reducing their taxable income. Foreign

WHT on dividends paid to these institutions is creditable

against their final tax liability, however, it is disputed

whether or not payments on provisions to pension bene-

ficiaries and the like are connected with foreign source

dividends and reduce the creditable amount. In any

case, these companies may deduct foreign WHT from

their taxable base instead of claiming a tax credit.

Financial Investors (2): Pensionskassen are exempt from

tax. They may not credit foreign WHT

CIVs: The CIV itself is tax exempt (effective taxation thus

0%) and may not credit foreign WHT. However, if the

CIV certifies the amount of foreign WHT, the investors

may credit this WHT. The CIV or the withholding agent

has to withhold 26.375% WHT on distributions and on

earnings considered distributed (ausschüttungsgleiche

Erträge), fully creditable for resident investors.



Taxpayer Companies1

CIVs

Individuals Yes Same treat-

1 Please note that effective taxation may differ due to the fact that foreign WHT will only be credited against the

amount of German tax due on the foreign-source income (i.e. no tax credit of foreign WHT in case dividends are ex-

empt as for regular corproations, potential credit of foreign withholding tax to the extent dividends are taxable in Ger-

many) whereas German WHT (Kapitalertragsteuer) is fully creditable and a refund would be granted in case WHT

would exceed the final tax liability.

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visions.

ment if the

CIV receives

foreign divi-

dends (ordi-

nary credit

possible for

investors,

see above).

Different

treatment if

the CIV rece-

ives German

dividends.

German

dividends

received by a

nonresident

CIV are

“transformed”

into foreign

income for

the purpose

of taxing

resident in-

vestors in the

CIV. Thus,

WHT levied

on the divi-

dend will no

longer be

fully credita-

ble but only

an ordinary

credit is

granted at

the level of

the investor

in the CIV.

To the extent

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the investor

is in an

excess credit

position, this

triggers an

additional tax

burden in

case of Ger-

man divi-

dends.

Non-financial com-

panies

Yes Same treat-

ment if the

CIV receives

foreign divi-

dends. Dif-

ferent treat-

ment if the

CIV receives

German

dividends

(see above).

Due to the

dividend

exemption

corporate

entities can-

not claim

credit for

foreign WHT

on dividends

and taxation

of German

dividends

(transformed

into foreign

dividends) is

always high-

er in case of

a routing via

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nonresident

CIVs.

Life insurance com-

panies

Yes See above,

actual tax

effects de-

pend on

excess credit

situation.

Pension funds Yes See above,

actual tax

effects de-

pend on

excess credit

situation.

CIVs as investors: No equal

treatment as

German CIV

receives full

WHT refund

on German

dividends in

2010. Foreign

WHT on for-

eign dividends

(possibly re-

duced due to

treaty) can be

credited by

resident inves-

tors if certified

by the funds

(see right col-

umn).

See above.




tax law (full credit, ordinary credit, matching cre-

dit, exemption, deduction, etc.)?

Ordinary Credit.

If a credit method is applied in domestic tax law, Non-individuals: Per country.

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Individuals: overall basis (usually no material difference

due to schedular system with flat rate applying to gross

basis).




Ordinary credit.




Net income. (Individuals may not deduct any expenses,

neither related to domestic dividends nor related to for-

eign dividends.)







The extent of expenses attributable is disputed as the

wording of the law is not clear, as it refers to an „eco-

nomic link“ (“wirtschaftlicher Zusammenhang”). There

was a law change which eliminated the need for a “di-

rect” economic link in order to overrule a court decision

that only directly attributable expenses reduce the net

income when calculating the creditable amount of foreign

taxes.



No.






Please explain.



Yes, the CIV either deducts the foreign WHT as expense

when calculating the income per unit or shows the cre-

ditable foreign WHT. If the WHT is shown/certified, the

investors in the CIV can claim a credit for foreign WHT

(ordinary credit) against German income tax.









Yes, the CIV either deducts the foreign WHT as expense

when calculating the income per unit or shows the cre-

ditable foreign WHT. If the WHT is shown/certified, i.e.

the nonresident CIV follows the German rules for the

documentation, the investors in the CIV can claim a cre-

dit for foreign WHT (ordinary credit) against German

income tax. CIV has to be considered a foreign CIV with-

in the meaning of the InvTA.




No, but in case the CIV certifies this WHT, the investors

in the CIV may claim a credit for foreign WHT (see

above).

Do you see any infringements of the TFEU in Focus is currently infringements around payment of divi-

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sions.

dends to non-resident investors (i.e. outbound divi-

dends). Inbound cases have not been a focus area in the

past.









See above II.G.

Yes.

Due to partial or full dividend exemption or schedular

system (see above), no indirect credit for underlying

corporate tax is granted.




n/a








Exemption.

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Appendix 1


Germany


Recipient: Dom.

WHT


Aus Bel Bul Cyp Cze Den Est Fin Fra Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK

Individual 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Non-financial

company2)

26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Life insurance2) 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Pension fund2) 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 10 1)

CIV, with legal

personality2)

26,375 15

CIV, without legal

personality3

26,375 -

Comments:

1) UK treaty 2010 (applicable as of FY 2011): Special reduced WHT-rate for dividends distributed to Altersvorsorgeeinrichtungen / Pension funds.2) Refund for domestic WHT down to a rate of 15.825% available for non-resident entities subject to limited corporate tax liability (i.e. comparable to German corporate

entity).Refund under domestic law and all WHT-reductions under tax treaties subject to anti-treaty-shopping provision.

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Appendix 2


Germany


Recipient: Dom.

Metho

d


Aus Bel Bul Cyp Cze Den Est Fin Fra Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK

Individual oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Non-financial

company

oc/ex oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Life insurance oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Pension fund oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

CIV, with legal

personality

xx xx xx xx xx xx xx xx xx x xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx

CIV, without legal

personality

xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx

Comments:

Pension fund relates to Pensionsfonds only. Pensionskassen are exempt from tax, no credit granted.xx: Foreign WHT can either be certified by CIVs, giving their investors the opportunity to claim ordinary credit for this WHT or the CIV may deduct foreign WHT,thereby reducing the income attributable to its investors. No refund/credit granted at the level of the CIV.x: Treaty with France: Special rule for distributions to investment funds (Art. 25b para 4)

Notes: OC = ordinary creditMC = matching creditFC = full creditEx = exemptionIC = indirect credit for underlying corporate tax

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Appendix 3




Resident individuals are in principle taxed on a gross basis as well. Resident corporate entities that are

not tax-exempt may, however, deduct costs incurred with regard to portfolio shareholdings. This is

especially relevant for pension funds (Pensionsfonds), Life Insurance companies and corporations

subject to the held-for-trading exception. Contrary to that, nonresident corporate investors are subject

to WHT on dividends on a gross basis, giving rise to a potential infringement. With regard to Pen-

sionsfonds, the Commission has already initiated an infringement proceeding against Germany (C-

600/10).


Whereas resident CIVs are treated as taxable subjects but are tax exempt, non-residents CIVs suffer

irrecoverable WHT on German dividends. Thus, resident CIVs do not have to pay German WHT on

German dividends whereas foreign CIVs suffer from this tax. The same reasoning applies to tax-

exempt charitable organizations.

3. WHT rates

No infringement, as initial WHT rates are not lower for resident investors

4. Dividend exemption

German dividends received by resident non-financial corporations are exempt from corporate income

tax. The WHT on these dividends may nonetheless be fully credited against the final corporate income

tax liability of the recipient, even if this results in a refund of WHT. German WHT (as reduced by

domestic provisions to 15.825% or by applicable treaty to 15% in most cases) is a final tax burden for

nonresident investors, however, as these nonresidents cannot opt for tax assessment and are not

granted the exemption for dividends received. The Commission has already initiated an infringement

proceeding against Germany (C-284/09).


Resident non-financial companies, life insurance companies, companies subject to the held-for-trading

exception and Pensionsfonds are subject to taxation on the combined result of their activities. For ex-

ample, dividends (if taxable at all) may be set-off against losses from other activities. A nonresident is

subject to a separate WHT tax on dividends from German companies even though the nonresident may

have other taxable activities in Germany. For example, a nonresident bank is subject to a final WHT

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(final rate after reduction depending on treaty, but initially 26.375%, domestic reduction to 15.825%)

on German dividends even if the nonresident generates losses in a German permanent establishment

provided that the shares in the German companies are not attributable to the permanent establishment.

II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for

juridical double taxation


Not yet analyzed in detail. Relief for double taxation under the ordinary credit method is calculated on

per country-basis. This means that relief for taxes paid in other Member States with a taxation exceed-

ing German taxation may be lost. As dividends are tax exempt for non-financial investors, no foreign

WHT may be credited.


Not yet analyzed in detail. Excess foreign tax credit cannot be carried forward, regardless of the reason

of the excess-credit situation (e.g. taxpayer incurred losses, dividends tax exempt).


Not yet analyzed in detail. Relief for double taxation is calculated on the basis of the foreign net in-

come.

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Country: Ireland




















es? Please explain

N/A





Please explain.





2010).

N/A




N/A

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2







please explain.

N/A








Individuals

Non-financial companies

Life insurance companies

Pension funds

CIVs:

1.






N/A


net income basis?

N/A














N/A





N/A

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3

3






ties)?








N/A











N/A




N/A





ries?

N/A




N/A





N/A

Is a nonresident CIV, which disqualifies N/A

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4

4





















N/A



N/A






N/A





N/A






N/A



N/A

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5

5


distribution, etc.

F. Refund procedure



N/A




N/A




tions?

N/A



N/A



claims?

N/A




tation?





N/A






N/A





N/A


a refund?

N/A




N/A

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6

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viders?





N/A



N/A







N/A






N/A





N/A



spontaneously?

N/A


A. Taxation of CIVs



Unit Trust – separate entity

Investment Limited Partnership (‘ILP’)– separate entity

Part XIII company – separate entity

Common Contractual Fund (‘CCF’) - transparent



ments through CIVs?


Unit Trust Not subject to

tax at the CIV

level

Distributions from

an Irish CIV to Irish

tax resident inves-

tors (excluding

certain exempt Irish

investors e.g.

ILP

Part XIII Company

CCF

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7

pension funds,

credit unions) are

subject to withhold-

ing tax at the CIV

level. Distributions

from an Irish CIV to

non-Irish tax resi-

dent investors are

not subject to with-

holding tax at the

CIV level.



nonresident?

No – Irish domiciled CIVs are not subject to tax at the fund level.

However, Irish domiciled CIVs are obliged to withholding tax on

distributions to Irish resident investors and to withhold tax on

transfers or redemptions of units by Irish resident investors. There

is no obligation to withhold in respect of non-Irish resident inves-

tors.




gory?

Individuals: Marginal rate of Income Tax of 41% (social

security charges and levied not considered here)

CIVs/Pension funds: 0% Tax Neutral at fund level

Companies: 0% (Dividends received from Irish resident

companies – regardless of shareholding relationship)

Companies: 0% (Portfolio dividends received by com-

panies where the income is treated as trading income of

the recipient ,e.g. insurance companies, and the payor

company is (i) resident in the EU/DTA country or (ii) a

75% subsidiary of a listed company)

Companies: 12.5% (Non-portfolio dividends received by

companies where the income is treated as trading in-

come of the recipient e.g. insurance companies)

Companies: 12.5% 1. Dividends paid out of trading

profits of an EU/DTA resident company 2. Portfolio divi-

dends from an EU/DTA resident company where the

dividends do no form part of the trading income of the

recipient.

Companies: 25% (All other instances).

Life Insurance companies: Subject to the same rate of

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8

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tax as other companies. However, dividends may form

part of the trading income of a life insurance company,

which would not be the norm for non-life assurance

companies. Where dividends form part of the trading

income of an Irish resident company and those dividends

are portfolio dividends, they will be exempt from Irish

corporation tax.








visions.


Individuals Yes No**

Non-financial com-

panies

No* No***

Life insurance com-

panies

No* No***

Pension funds Yes Yes

CIVs:

Yes Yes

* Dividends received by Irish tax resident compa-

nies from other Irish tax resident companies (re-

gardless of shareholding relationship) are exempt

from Irish corporation tax (Section 129 TCA 1997).

** Tax rates applicable to dividends from resident

CIVs are 27 %, 30 % or 50 %, whereas the tax

rates applicable to non-resident CIVs are 27 %, 30

%, 41 % or 50 % (Section 739E TCA 1997).

*** Tax rates applicable to dividends from resident

CIVs are 12.5 % or 25% (Section 23 TCA 1997

and Section 21A TCA 1997)), whereas the tax

rates applicable to non-resident CIVs are 0 %,

12.5 %, 27 % or 30 % (Section 747D TCA 1997).






(1) Portfolio dividends are exempt where the income is

treated as trading income of the recipient (e.g. insurance

companies) and the payor company is EU/DTA resident–

no foreign tax credit available

(2) All other cases - Ordinary credit i.e. credit is limited to

the Irish tax payable on the Irish measure of the foreign

income.

If a credit method is applied in domestic tax law, Per item of income

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Ordinary credit




Irish measure of the gross income using the re-

grossing method. Hence, the net dividends received

are grossed up by the lower of the Irish tax rate and the

foreign effective tax rate. For example, if an Irish com-

pany receives a dividend €80 after suffering wht of €20,

the dividend of €80 is “grossed-up” by the lower of 20%

or 25% (or 12.5% if trading receipt) i.e. 80/(100-20) =

€100. It is on this figure then that the double tax credit

is calculated.







N/A.



It is not possible to carry forward or back credit in respect

of portfolio dividends.

In the case of non-portfolio dividends, it may be possible

to use excess credits against other dividend streams

(‘onshore pooling’). Any excess can then be carried for-

ward but only against dividends taxable at the same rate

(i.e. credits on dividends taxable at 12.5% may only be

carried forward against dividends taxable at the 12.5%

rate).






Please explain.



No. It may, however, be possible for the Irish domiciled

CIV to reclaim the foreign WHT suffered.

Is a resident investor of a nonresident CIV, No.

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This depends on each source jurisdiction. It is possible to

obtain refunds for foreign WHT suffered by Irish domi-

ciled CIVs through treaty, domestic or ECJ claims.





sions.

Possibly. Dividends received by Irish resident companies

from other Irish resident companies are exempt from

Irish corporation tax (regardless of the shareholding rela-

tionship) (Section 129 TCA 1997). Dividends received by

Irish resident companies from EU/DTA resident compa-

nies are only exempt from Irish corporation tax if they are

portfolio dividends and they from part of the trading in-

come of the recipient (e.g. insurance companies) (Sec-

tion 21B TCA 1997).

In all other cases, dividends received from EU resident

companies will be subject to Irish corporation tax with

foreign tax credits available for any irrecoverable with-

holding taxes and underlying taxes. A credit for underly-

ing taxes will not be available in the case of portfolio

dividends (Schedule 24 TCA 1997).









See above II.G.

N.B. Assuming recipient is an Irish resident company

Portfolio dividends from resident companies:

Dividends received by Irish resident companies from

other Irish tax resident companies are exempt from Irish

corporation tax (regardless of the shareholding relation-

ship) – no credit available for underlying domestic tax

(Section 129 TCA 1997).

Portfolio dividends from nonresident companies:

(1) Portfolio dividends are exempt where the income is

treated as trading income of the recipient (e.g. insur-

ance companies) and the payor company is EU resi-

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11

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dent– no foreign tax credit available (Section 21B

TCA 1997)

(2) Where dividends are received from EU/DTA resident

companies (other than in the case of (1) above) a

foreign tax credit should be available for any with-

holding taxes suffered (Schedule 24 TCA 1997).

An indirect tax credit for underlying foreign taxes is not

allowed in the case of portfolio dividends.




It is not possible to carry forward or back credit in respect

of portfolio dividends.

In the case of non-portfolio dividends, it may be possible

to use excess credits against other dividend streams

(‘onshore pooling’). Any excess can then be carried for-

ward but only against dividends taxable at the same rate

(i.e. credits on dividends taxable at 12.5% may only be

carried forward against dividends taxable at the 12.5%

rate). (Schedule 24(9E) TCA 1997)








Ordinary credit.

Yes, dividends received by Irish resident companies from

other Irish resident companies (regardless of the share-

holding relationship) are exempt from Irish corporation

tax.

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12

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Appendix 2

Residence state taxation: Inbound dividends Ireland


Recipient: Dom.

Metho

d


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ita Lat Lit Lu

x

Mal Net Pol Por Rom Slo Slo Spa Swe UK

Individual OC OC OC OC OC OC OC O

C

OC OC OC OC OC O

C

OC OC O

C

OC OC OC OC OC OC OC OC OC OC

Non-financial

company

OC OC OC OC OC OC OC O

C

OC OC OC OC OC O

C

OC OC O

C

OC OC OC OC OC OC OC OC OC OC

Life insurance Ex*/O

C

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex

*/

O

C

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex

*/

O

C

Ex*/

OC

Ex*/

OC

Ex

*/

O

C

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Ex*/

OC

Pension fund Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex

**

Ex** Ex** Ex** Ex** Ex** Ex

**

Ex** Ex** Ex

**

Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex**

CIV, with legal

personality

Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex

**


**

Ex** Ex** Ex

**


CIV, without legal

personality

Ex** Ex** Ex** Ex** Ex** Ex** Ex** Ex

**


**

Ex** Ex** Ex

**


Comments:

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13

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*Portfolio dividends received by an Irish resident company from EU/DTA resident companies are exempt from Irish corporation tax where the dividends form part of the trading income of the recipient (e.g. insurance companies). In all other cases, an ordinary credit should be available. **Irish domiciled CIVS are not subject to tax at the fund level. Distributions from an Irish CIV to Irish resident investors are however subject to withholding tax. Distri-butions from an Irish CIV to non-Irish resident investors are not subject to withholding tax. Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption IC = indirect credit for underlying corporate tax

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Appendix 3





3. WHT rates







Deloitte

Study on the impact of several alternative solutions to the double taxation problems

presented by source country withholding taxes on cross-border dividends paid to in-

dividual and portfolio company investors within the EU

Country: Italy

















Is a nonresident pension fund

or CIV of another EU member

state treated as a separate

entity for domestic tax purpos-

es? Please explain

In principle, non-resident entities, including pension funds and CIVs, are

regarded as separate entities for income tax purposes irrespectively of

their legal status (i.e. having or not legal personality) in the relevant Coun-

try of establishment.

Is a nonresident pension fund

or CIV of another EU member

state eligible for tax treaty ben-

efits on its own behalf, e.g.

reduced WHT on dividends?

Please explain.

See paragraphs 6.9-6.14 of the 2010

OECD Model; and paragraphs 22-30

of The Granting of Treaty Benefits with

respect to the Income of Collective

Investment Vehicles (Paris: OECD,

2010).

The application of tax treaties to which Italy is a party requires:

- The nonresident to be subject to taxes covered by the treaty in the

Country of establishment and

- The nonresident to be the beneficial owner of payments received

(e.g. dividends).

General rules apply also to nonresident pension funds and CIVs (including

pension funds and CIVs which are established in a EU Member State),

with the following exceptions:

- Pension funds which are regarded in their Country of establish-

ment as entities having a legal personality, even if materially no

income tax is applied in the Country of establishment) (as clarified

by Italian tax authorities Ministerial Circular 23 December 1996,

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No. 306);

- CIVs (excluding real estate investment funds) which are UCITS

compliant or (in case of CIVs which are not UCITS compliant) sub-

ject to domestic regulatory supervision which are established (inter

alia) in EU Member States allowing an adequate exchange of in-

formation with the Italian tax authorities. Tax treaties apply to such

part of an Italian source income which is referable to nonresident

investors in the relevant CIV (see example below). The DTT ap-

plies to the extent that the Country of establishment of the CIV

grants a similar treatment to CIVs established in Italy.

Example:

% of nonresident investors in the CIV: 50%

Italian source income (e.g. Italian dividends): 2,000

Part of Italian source income to which tax treaties apply: 1,000

Is a nonresident CIV, which

qualifies for treaty benefits,

viewed as the beneficial owner

of dividends? Please explain.

See paragraphs 31-35 of The Granting

of Treaty Benefits with respect to the

Income of Collective Investment Ve-

hicles.

The Italian tax authorities clarified that, in order for a CIV to qualify as

beneficial owner under the provision of a tax treaty, it has to be considered

subject to income taxation in its Country of establishment even though the

entity is materially exempt from such income taxation (Ministerial Ruling 21

April 2008, No. 167).

Do tax treaties concluded with

the other EU member states

contain specific rules on

pension funds and CIVs? If

yes, please explain.

Tax treaties concluded by Italy with other EU Member States do not con-

tain specific rules on pension funds and CIVs.


What are the WHT rates under

domestic tax law on dividends

paid by resident companies to

resident investors and nonresi-

dent investors of other EU



Individuals Taxation of dividends received by

resident individuals depends on

whether the dividends pertain to a

qualified shareholding or not. For

that purpose, a shareholding is

deemed to be qualified shareholding

where it grants a percentage of

- 27% substitute tax

(reduced to 12.5% in

case of dividends

pertaining to saving

shares, i.e. shares

without voting rights.

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3

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voting rights exercisable in the

ordinary shareholders’ meeting

higher than 2% or a participation in

the capital higher than 5% (higher

percentages apply in case of share-

holdings in companies which are not

listed on a regulated market).

- 12.5% substitute tax (please

consider that, from an Italian tax

technical point of view, dividends

paid by Italian listed companies are

subject to a substitute tax, not a

withholding tax. For the purposes of

the present analysis there is no

difference between the two catego-

ries) in respect of dividends pertain-

ing to non-qualified shareholdings

(i.e. shareholdings which are not

qualified shareholdings);

- 49.72% of dividends subject to

personal income tax (tax rate form

23% up to 43%) in respect of divi-

dends pertaining to qualified share-

holdings (i.e. no withholding tax is

levied).

Non-financial

companies

No substitute tax applies to compa-

nies subject to corporate income

taxes. Instead, dividends are in-

cluded in the taxable basis as fol-

lows:

- 5% of dividends is subject to cor-

porate income tax of 27.5% being

the residual 95% exempt (actual tax

rate of 1.375%);

- 100% of dividends subject to

regional income tax at the rate of

3.9% up to 4.82%.

- 100% of dividends

subject to substitute

tax (withholding tax) at

the rate of 1.375%

(full exemption should

the recipient may

benefit from the Par-

ent Subsidiary Direc-

tive, as implemented

in Italy).

Life insurance

companies

Life insurance companies are sub-

ject to corporate income taxes as

- 100% of dividends


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4

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non-financial companies (therefore,

no substitute tax applies). Instead,

dividends are included in the taxable

basis as follows:

- 5% of dividends subject to corpo-

rate income tax of 27.5% being the

residual 95% exempt (actual tax rate

of 1.375%) (no withholding tax);

- 50% of dividends subject to re-

gional income tax at the rate of 3.9%

up to 4.82%.

Dividends received on behalf of

policyholders are 100% subject to

corporate income taxes (being the

payments made to such policyhold-

ers fully deductible).


the rate of 1.375%

(full exemption should

the recipient may

benefit from the Par-

ent Subsidiary Direc-

tive, as implemented

in Italy).

Pension funds - Dividends received by Italian

pension funds are exempt from

substitute tax (withholding tax) and

are included in the year-end's result

(net value at the end of the year less

net value at the beginning of the

year). A substitute tax at the rate of

11% is levied on the fund’s net

result.

- 100% of dividends



the rate of 11% (same

tax rate applicable on

the net result of Italian

pension funds).

CIVs:

1.

Regime valid until 30 June 2011:

- Dividends received by Italian CIVs

are exempt from substitute tax and

are included in the year-end's result

(net value at the end of the year less


year). A substitute tax at the rate of

12.5% is levied on the fund’s net

result.

Regime valid starting from 1° July

2011:

- Dividends received by Italian CIVs

are exempt from substitute tax

- 100% of dividends



the rate of 27% or of

1.375% should the

fund is regarded in its

Country of establish-

ment as an entity

subject to domestic

income taxes (even if

materially no income

taxes are applied).

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5

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(withholding tax). CIVs are exempt

from any income taxation in Italy

and the relevant investors are sub-

ject to withholding tax at the rate of

12.5% (definitive or advanced de-

pending on the tax status of the

investor) on the proceeds deriving

from the investment in the fund.

Are reductions or exemptions

from WHT provided under do-

mestic law for nonresidents?

To which categories of inves-

tors do they apply? What are

the conditions that have to be

fulfilled?

A domestic exemption is provided under the Parent Subsidiary Directive

as implemented in Italy. The exemption applies to companies incorporated

in one of the legal forms provided by the Directive and having a 10% min-

imum shareholding in the Italian company. The exemption is subject to

certain documental requirements (certification of tax residence of the divi-

dends’ recipient, self-declaration attesting that all the requirements for the

application of the exemption are met, dividend voucher) and applies once

that a minimum holding period of 1 year is elapsed.

Moreover, nonresident individuals and CIVs, which are not covered by the

1.375% tax rate, are allowed, in principle, to claim for the refund of up to

4/9 of the substitute tax levied within the limit of the amount of income

taxes suffered in the Country of residence (subject to proper certification

by the relevant tax authorities).

Example:

Italian dividend: 1,000

Italian substitute tax (27%): 270

Max Italian refund amount (4/9 of 270): 120

Income taxes suffered abroad: 120

Actual Italian substitute tax recoverable amount 150

Effective tax rate,……………………………………………...15%

Basically the refund procedure (4/9) achieves the same result as of mostof DTTs in place (15% of taxation). However, the procedure for obtainingthe 4/9 refund is more complex (it requires also a certification attesting thatamount of taxation levied abroad) and time consuming. That is reason whythe 4/9 refund in not widely used.

Is WHT calculated on a gross

income or net income basis?

Withholding tax is applied on dividend gross amount (see example below).

Example:

Dividends distributed: 1,000

Withholding tax rate: 12.5%

Withholding tax applied: 125

Is the taxation of dividends for Life insurance companies are allowed to deduct payments made to policy-

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6

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domestic life insurance com-

panies, pension funds etc.

reduced because they are

entitled to deduct from their tax

base payments to and provi-

sions made for the obligation

towards policyholders etc.? (in

some Member States divi-

dends paid to life insurance

companies etc. are subject to

withholding tax and the divi-

dends are included in the cor-

porate tax base of the compa-

ny, but no corporation tax is

effectively paid on the divi-

dends because of tax deducti-

ble provisions etc.).

holders under ordinary corporate income tax code provisions. .

Pension funds are not subject to any substitute tax (withholding tax) and

dividend amounts are included in the net result subject to the specific 11%

substitute tax (see above).

If the effective taxation of do-

mestic life insurance compa-

nies etc. is reduced as de-

scribed above, do similar enti-

ties established elsewhere in

the EU get national treatment,

that is, are they entitled to

claim back the domestic with-

holding tax based on a calcula-

tion of their net income (divi-

dends, less payments to and

provisions for future liabilities)?

No. Nonresident life insurance companies are subject to the same regime

as nonresident ordinary companies (that is the application of the 1.275%

substitute tax).

If a WHT is applicable to divi-

dends paid to resident inves-

tors, is the dividend included in

the taxable income of the resi-

dent investors, and is the WHT

offset against the final tax lia-

bility. Is a refund of WHT made

if the WHT exceeds the final

tax liability?

Dividends subject to 12.5% substitute tax are not included in the taxable

income of the recipient and therefore there is no possibility to offset the

substitute tax against the final tax liability or to obtain a refund for the

substitute tax exceeding the final tax liability.

In which cases is the levying of Italian tax laws in force should be compliant with the Treaty on the Func-

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7

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withholding taxes under do-

mestic tax law in your opinion

contrary to the Treaty on the

Functioning of the European

Union (TFEU)? In this respect

please consider if any tax pro-

visions applicable solely to

residents mean that their effec-

tive tax rate on dividends is

significantly reduced. Please

provide the text of the relevant

legal provisions.

tioning of the European Union (TFEU).


Is the withholding agent the

company itself or a financial

intermediary?

Substitute tax is levied by the financial intermediaries where the shares

are deposited (or sub-deposited) which are part of the central depositary

system managed by Monte Titoli S.p.A.. The deposit (or sub-deposit) of te

shares with a financial intermediary which is part of of the central deposita-

ry system managed by Monte Titoli S.p.A. is mandatory.

In the case of a financial inter-

mediary, does it need to be a

resident entity? If so, what is

the provision of the law that

prohibits the use of foreign

intermediaries?

The financial intermediary applying the substitute tax can be a nonresident

financial intermediary to the extent it part of the central depositary system

managed by Monte Titoli S.p.A..

Who is liable in case of non-

compliance with the withhold-

ing tax obligation? What stan-

dard of liability is applied?

The financial intermediary depositary of the shares is responsible for the

application of substitute taxes. Ultimately, in case of non-application of the

substitute tax, the recipient is obliged to include dividends in the tax return

and apply the substitute tax accordingly.


What are the WHT rates for

nonresidents on portfolio divi-

dends under tax treaties with

other EU member states?

Generally, tax treaty rate is not higher than the 15%. In some treaties, the

tax rate cannot be higher than 5%.

Is a nonresident CIV, which

disqualifies for treaty benefits

because it is not treated as a

“person” or as a “resident”,

Application of tax treaties to investors in the CIV (not directly to the CIV)

has been confirmed in principle by the Italian tax authorities to the extent

that mandatory yearly distribution mechanisms are in place at the level of

the fund (Ministerial Ruling 27 January 2006, No. 17/E). There are no offi-

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8

8

entitled to a reduced treaty rate

on behalf of its investors? In

the affirmative, it would not be

necessary for each individual

investor of a CIV to submit its

own request for treaty benefits.

If yes, please explain. E.g.

does it matter whether the

investors of the CIV are resi-

dent in the same member state

as the CIV or in other member

states (triangular situation),

whether the CIV is publicly

listed, etc.?

cial guidelines for the procedure to be followed for the application of tax

treaties to eligible CIV’s investors.

In a situation, where a nonresi-

dent CIV does not qualify for

treaty benefits and it is not

entitled to a reduced rate on

behalf of its investors, are the

individual investors of the CIV

in fact requesting a WHT re-

duction, or do practical issues


Application of tax treaties to investors in the CIV (not directly to the CIV)

has been confirmed in principle by the Italian tax authorities to the extent

that mandatory yearly distribution mechanisms are in place at the level of

the fund (Ministerial Ruling 27 January 2006, No. 17/E). There are no offi-

cial guidelines for the procedure to be followed for the application of tax

treaties to eligible CIV’s investors.

Is the relief from WHT applied

at source or by means of a

refund procedure?

The ordinary relief is provided by means of a refund procedure even if

relief at source may be allowed under the responsibility of the tax agent

(i.e. the financial intermediary obliged to apply the substitute tax).


If withholding tax relief is pro-

vided at source, please explain

how the procedure works and

what the roles are of the differ-

ent actors involved.

The direct application of treaty relief is allowed under the responsibility of

the tax agent (i.e. no mandatory). In order to apply for direct application of

treaty relief, the nonresident recipient provides the tax agent (i.e. the de-

positary of the shares) with a certificate of tax residence issued by the

relevant tax authorities together with a self-declaration attesting that the

recipient is eligible for the application of the treaty and the beneficial owner

of dividend payments.

Do different relief at source

procedures apply depending

on the investor and/or type of

reduction, i.e. whether pro-

No domestic relief procedures are available for dividends.

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9

9

vided by tax treaties or domes-

tic law.

What kind of documentation

must be provided by the inves-

tors to obtain WHT tax relief at

source? Please distinguish

between domestic and treaty

relief if the required documen-

tation is different.

See below documentation to be provided in order to obtain substitute tax

refund under DTTs.

How often must a nonresident

investor document to be eligi-

ble for tax treaty benefit? E.g.

once a year, upon each distri-

bution, etc.

Although no official guidelines are provided (being the direct application of

treaty relief voluntary and under the responsibility of the tax agent), it is to

be considered that usually the tax residence certificate is issued in respect

of a specific fiscal year.

F. Refund procedure

Is a refund made by the tax

authorities or the withholding

agent?

The refund is made by the Italian tax authorities.

At what time may an investor

apply for a refund? E.g. upon

declaration or receipt of divi-

dend, year end, specific date,

etc.

In principle, the refund may be claimed once that the substitute tax is le-

vied by the tax agent.

Are financial intermediaries

allowed to submit refund

claims on behalf of their inves-

tors? If yes, under which condi-

tions?

Although tax agents are in principle allowed to submit refund claims on

behalf of taxpayers (as clarified by the Italian tax authorities in Ministerial

Ruling 10 June 1999, No. 95), the procedure is uncommon and not specif-

ically regulated. We are not directly aware of financial intermediaries which

submitted refund claims on behalf of taxpayers.

Are there standardized forms

to be used to submit a refund

claim?

Standardized forms are available for certain Countries only (Germany,

Portugal, Sweden, United Kingdom, United States of America, Switzer-

land).

Is there a central office within

the tax administration which

handles all refund claims?

Nonresidents’ refund claims are processed by a specific office in Pescara

(Centro Operativo di Pescara).

Is there a deadline for claiming

a refund? In the affirmative, is

the deadline the same as the

ordinary statute of limitation?

Are the deadlines the same for

Deadline for claiming refund is the ordinary statute of limitation which ex-

tends 48 months starting from the date when the substitutive tax is levied.

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10

10

domestic and cross-border

dividends? If not, specify the

articles of the law giving rise to

the difference in deadlines.

What kind of documentation

must be provided by the inves-

tors in order to obtain a re-

fund? Please distinguish be-

tween domestic and treaty

relief if the required documen-

tation is different.

Where no specific forms are provided (see above), the nonresident reci-

pient provides the Italian tax authorities with such documentation that is

needed to prove the tax residence for the purpose of the treaty (i.e. a cer-

tificate issued by the relevant tax authorities), the beneficial ownership of

dividend payments for which the refund is claimed and that such dividend

payments have been actually made and subject to full taxation in Italy.

How often must a nonresident

investor document to be eligi-

ble for tax treaty benefit? E.g.

once a year, upon each distri-

bution, each request, etc.

In principle, the eligibility for the application of tax treaty is documented

once at the time of the refund request.

How long does it usually take

to obtain a refund?

The refund procedure is time consuming and could take up to 2/3 years to

obtain the payment, depending on the tax office budget available.

Are there any direct costs,

duties, etc. associated with

claiming a refund other than

costs to professional service

providers?

No

If a financial intermediary

makes a refund claim on behalf

of the investor, what is the

approximate amount of fees


We are not directly aware of similar agreements.

Is an investor entitled to inter-

est on a refund? If yes, please

explain.

Interest is due on a bi-yearly basis (at the rate of 1% for each semester)

starting from the second semester following the date when the substitute

tax has been levied.


Which corporate tax system is

applicable? E.g. (i) classical,

(ii) schedular (single, multiple,

half-income), (iii) imputation, or

(iv) exemption.

See paragraph 2.2 in COM(2003) 810

The previous imputation system has been replaced by a schedular (single)

system, where both the company and the shareholder (individual) is sub-

ject to tax, although the taxation of the shareholder is reduced compared

to the ordinary tax rates.

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11

11

final.

Is the corporate tax system

applied identically for resident

and nonresident taxpayers per

investor category with respect

to dividends from a resident


In principle, EU companies and pension funds are subject to the same tax

burden of resident companies, being the substitute tax applicable at the

rate of 1.375%. However, nonresident individuals and CIV are subject to a

more burdensome taxation compared to resident individuals and CIVs.

Hence, nonresident individuals and CIVs, which are not covered by the

1.375% tax rate, are allowed to claim for the refund of up to 4/9 of the

substitute tax levied within the limit of the amount of income taxes suffered

in the Country of residence . This causes the effective tax rate to be 15 %

for non-resident individuals and CIVs. This should be compared to the

taxation of resident individuals of either 12.5 % or 21.3 % (marginal) and

resident CIVs of 12.5 %.


Is exchange of information

made with other EU member

states regarding payment of

dividends?

Dividend payments occurred within EU are subject to exchange of infor-

mation .

In the affirmative, are informa-

tion provided automatically, on

request, or spontaneously?

Exchange of information is activated at request, following infringements

which are challenged by inspectors during audit activities.


A. Taxation of CIVs

Are resident CIVs treated as

separate entities for domestic

tax purposes?

Under Italian tax law, resident CIVs are considered separate entities even

though they are not subject to income taxes.

How is tax neutrality achieved

between direct investments

and indirect investments

through CIVs?


Investments

company

Regime valid until 30 June

2011:

- Dividends received by Italian

CIVs are exempt from any

withholding tax and are included

in the year-end's result (net

value at the end of the year less


year). A substitute tax at the

rate of 12% is levied on the

fund’s net result.

Regime valid starting from 1°

July 2011:


- Income deriving from CIVs are

included in the taxable income and

subject to corporate income tax at

the rate of 27,5%. A tax credit equal

to 15% of income received is

granted.


2011:


included in the taxable income and

subject to corporate income tax at

the rate of 27,5%. An advance

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12

12



withholding tax. CIVs are ex-

empt from any income taxation.

withholding tax at the rate of 12.5%

is applied.

individuals Regime valid until 30 June

2011:



withholding tax and are included

in the year-end's result (net

value at the end of the year less


year). A substitute tax at the

rate of 12% is levied on the

fund’s net result.

Regime valid starting from 1°

July 2011:



withholding tax. CIVs are ex-

empt from any income taxation.



exempt from taxation (no withhold-

ing tax applies).


2011:


subject to a 12.5% definitive with-

holding tax.

Does the taxation of CIVs de-

pend on whether the investors

are resident or nonresident?

Taxation of CIVs does not depend on the tax status or residence of their

investors.


What is the overall domestic tax burden

on dividends applicable to resident in-

vestors per category?

For individuals, 12.5% or the marginal rate (from 23% to 43%) to

be applied to 49.72% of dividend amount.

For companies subject to corporate income tax, 27.5% to be ap-

plied to 5% of dividend amount (actual tax rate is 1.375%).

The regime applicable starting from 1° of July 2011 for CIVs pro-

vides 0% tax burden (taxation shifted at the investor level by

mean of a 12.5% withholding tax on CIVs’ distributions and rele-

vant incomes).

For pension funds, 0% (dividends are included in the net result

subject annually to substitute tax at the rate of 11%).

Is the taxation of investors per category

identical whether dividends are re-


Individuals Yes Yes

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13

13

ceived from resident companies or non-

resident companies of other EU mem-

ber states, and whether dividends are

received from resident CIVs or nonresi-

dent CIVs of other EU member states?

If no, please explain and provide the

text of the underlying legal provisions.

Non-financial

companies

Yes Yes

Life insur-

ance compa-

nies

Yes Yes

Pension

funds

Yes Yes

CIVs: Yes Yes


How is juridical double taxation caused

by WHT on portfolio dividends relieved

under domestic tax law (full credit, ordi-

nary credit, matching credit, exemption,

deduction, etc.)?

According to domestic tax law, juridical double taxation on divi-

dends is relieved through ordinary credit method.

If a credit method is applied in domestic

tax law, is the foreign tax credit calcu-

lated on an overall basis, per country,

per item, etc.?

The foreign tax credit amount is determined applying the ratio

between foreign income and the overall income to the amounts of

Italian taxes. The amount of the foreign tax credit is calculated

with regard to all foreign incomes deriving from each separate

country (per country basis calculation).

How is juridical double taxation caused

by WHT on portfolio dividends relieved

under tax treaties with the other EU

member states?

A tax credit equal to the amount of tax paid abroad is granted

within the amount of Italian tax referred to the same income and

to the extent that this foreign income is included in the overall

taxable income.

In the case of the ordinary credit me-

thod, is the credit calculated on the

basis of the foreign gross income or net

income?

The credit amount is calculated on the basis of the foreign gross

income.

In case the basis is the net income,

must foreign-source dividend be re-

duced by both expenses, which may be

attributable directly to individual share-

holdings, and expenses, which may

only be attributed indirectly between

shareholdings, such as portfolio man-

agement fees?

N/A

In the case of the ordinary credit me-

thod, may excess credit be carried for-

ward or backward?

Under domestic provisions tax credit in excess may be carried

forward or backward respectively, for the subsequent 8 fiscal pe-

riods or the previous 8.

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14

14

Is a resident investor of a resident CIV,

which is treated as a separate entity for

domestic tax purposes, but which does

not suffer any domestic taxation on

foreign dividends, entitled to a foreign

tax credit for WHT paid by the CIV?

Please explain.

See paragraph 42 of The Granting of Treaty



No.

Is a resident investor of a nonresident

CIV, which is treated as a separate

entity for domestic tax purposes, but

which does not suffer any taxation in

the residence state on foreign divi-

dends, entitled to a foreign tax credit for

WHT paid by the CIV? Please explain.




No.

Is a “refund” of foreign WHT granted to

a CIV?



Investment Vehicles

No.

Do you see any infringements of the

TFEU in the area of relief for juridical

double taxation of inbound dividends?

If so, please explain and provide the

text of the underlying legal provisions.

Provisions regulating the juridical double taxation should not be

contrary to principles stated in the TFEU


Are the rules on relief for economic

double taxation, if any, identical for

portfolio dividends from resident com-

panies and nonresident companies of

other EU member states? For example,

is an indirect foreign tax credit granted

for underlying foreign corporate tax if a

tax credit is granted for underlying do-

There should be no difference between the tax treatment referred

to Italian dividends and dividends distributed from non-resident

companies.

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15

15

mestic corporate tax?

See above II.G.

In the case an indirect foreign tax credit

is granted, is it possible to carry forward

or backward an unused tax credit?

N/A


Is economic double taxation under pa-

ragraph 4.1 of the Parent-Subsidiary

Directive (Council Directive

90/435/EEC) relieved under the method

of ordinary credit or exemption? Is there

any difference in the treatment of do-

mestic and cross-border situations?

Economic double taxation under Parent-Subsidiary Directive is

relieved under the method of exemption.

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16

16

Appendix 1


Italy


Recipient: Dom.

WHT


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ire Lat Lit Lux Mal Net Pol Por Rom Slo Slo-

vakia

Spa Swe UK

Individual12.5%/

marginal rate1

27%

(15%

DTT)

27%

(15%

DTT)

27%

(10%

DTT )

27%

(15%

DTT )

27%

(15%

DTT )

27%

(15%

DTT )

27%

(15%

DTT )

27%

(15%

DTT )

27%

(15%

DTT )

27%

(15%

DTT)

27%

(15%

DTT)

27%

(10%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(10%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(5%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

27%

(15%

DTT)

Non-financial

company 02

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(5%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

Life insuran-

ce 03

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(10%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(5%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

1.375%

(15%

DTT)

Pension fund

04

11%

(15%

DTT)

11%

(15%

DTT)

11%

(10%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(10%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(10%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(5%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

11%

(15%

DTT)

CIV, with

legal persona-

lity

05

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

1.375%

6

CIV, without

legal persona-

lity

07

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

27%

(DTT)8

Comments:

1. The 12,5% withholding rate applies to dividends received in connection with non qualified shareholdings. Dividends pertaining to qualified shareholdings are subject to marginal income tax rate (23% to 43% ) applied to the 49.72% of the relevantamount;

2. 5% of dividends amount are subject to corporate income tax equal to 27.5% (actual tax rate of 1.375%);3. 5% of dividends amount are subject to corporate income tax equal to 27.5% (actual tax rate of 1.375%);4. Dividends received by Italian pension funds are exempt from any withholding tax and are included in the year’s end result (equal to net value at the end of the year less net value at the beginning of the year);5. Until June 30 2011: Dividends received by Italian CIVs are exempt from any withholding tax and are included in the year end’s result (net value at the end of the year less net value at the beginning of the year.) A substitute tax at the rate of 12.5%

is levied on the fund’s net result. Starting from 1°July 2011: dividends received by Italian CIVs are exempt from any withholding tax. CIVs are exempt from any withholding tax in Italy and the relevant investors are subject to withholding tax atthe rate of 12.5% on the proceeds deriving from the investment in the fund;

6. Applicable, in the case the relevant CIV is subject to corporate income tax in its State of residence; the applicability of DTTs to CIVs has to be verified on a case by case basis.7. Until June 30 2011: Dividends received by Italian CIVs are exempt from any withholding tax and are included in the year end’s result (net value at the end of the year less net value at the beginning of the year.) A substitute tax at the rate of 12.5%

is levied on the fund’s net result. Starting from 1°July 2011: dividends received by Italian CIVs are exempt from any withholding tax. CIVs are exempt from any withholding tax in Italy and the relevant investors are subject to withholding tax atthe rate of 12.5% on the proceeds deriving from the investment in the fund;

8. The applicability of DTTs to CIVs has to be verified on a case by case basis.

Deloitte

17

17

Appendix 2


Italy


Recipient: Dom

.

Meth

od


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ire Lat Lit Lux Mal Net Pol Por Rom Slo Slo-

vakia

Spa Swe UK

Individual OC1 OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Non-financial

company

OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Life insurance OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Pension fund OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

CIV, with legal

personality

EX OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2 OC2

CIV, without

legal personali-

ty

EX 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03 03

Comments:


Comments1. Only for dividends pertaining to qualified shareholdings;2. Under the conditions that DTTs are applicable; the respect of these conditions has to be verified on a case by case basis;3. The applicability of DTTs has to be verified on a case by case basis, depending on the CIV subjection to a corporate income tax.

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18

18

Appendix 3





3. WHT rates







Deloitte




Country: Luxembourg




















es? Please explain

Regarding foreign entities classification, legal analysis prevails

(case laws). Entity would be considered as a separate entity or

not should its characteristics be comparable to a resident.

Tax transparency is recognized for entities, that, as Luxembourg

Fonds Commun de Placement (“FCP”), do not have legal perso-

nality. Vehicles that are deemed to be similar to Luxembourg

FCPs are for instance: French FCP, Irish CCF, Belgian FCP.





Please explain.





2010).

Potentially if the foreign entity is considered as a taxable person

for the purposes of the Double Tax Treaty (hereafter referred to

as “DTT”) (case by case basis) the treaty may be applicable.

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2

2







Yes unless the treaty includes limitation of benefits provisions.




please explain.

No.








Individuals 15% ¹ ³ 15% ³

Non-financial companies 0%* / 15% ² ³ 0%* / 15% ³

Life insurance companies 0%* / 15% ² ³ 0%* / 15% ³

Pension funds 0%(ASSEP)/15%³ 0%* / 15% ³

CIVs: 15% 0%* / 15%

* Please see conditions in the box below.

¹ Creditable against personal income tax liability.

² Creditable against corporate income tax liability.

³ There is no WHT on dividends paid by a Luxembourg CIV.






Yes withholding tax (“WHT”) exemptions exist. Should the internal

conditions of the parent subsidiary regime be met, no WHT

should apply on dividends distributed to fully taxable resident

companies, companies residents of EU (with legal form falling

within the scope of article 2 of the amended Parent Subsidiary

Directive) Member States or companies resident in EEA or States

with which Luxembourg has concluded a DTT and that are liable

to a tax corresponding to Luxembourg corporate income tax.

Conditions for exemption of WHT based on the participation ex-

emption regime are holding of participation of more than 10% or

EUR 1.2 million of acquisition price, for more than 12 months.


net income basis?

Gross basis.

Article 148 of the Luxembourg Income Tax Law.



Yes-Luxembourg allows insurance companies and pension funds

(ASSEP) to deduct technical provisions deemed to cover obliga-

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3

3












tions towards policyholders.

Article 167 of the Luxembourg Income Tax Law.

Luxembourg and foreign WHT can be credited against Luxem-

bourg corporate income tax.

Any non-creditable Luxembourg WHT can be refunded.

Articles 134, 134bis and 134ter of the Luxembourg Income Tax

Law and Grand Ducal Decrees of 26 May 1979.










ties)?

No








Individuals, non financial companies and life insurance compa-

nies: Dividends can be credited against the income tax liability or

refunded in case the taxable basis is not sufficient to obtain a full

tax credit (see below).

Articles 134, 134bis and 134ter of the Luxembourg Income Tax

Law and Grand Ducal Decrees of 26 May 1979.











Refund of WHT not creditable in case of foreign taxable entities.

See Appendix 3

Non-resident entities which have no permanent establishment in

Luxembourg (or other cases mentioned in article 156.1. of the

Luxembourg Income Tax Law) have only a limited tax liability in

Luxembourg. Article 134 and following do not apply to their situa-

tions (vs. articles applicable to Luxembourg permanent estab-

lishments of non-resident entities).

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4

4




Luxembourg withholding tax should be withheld by the payer

(company itself) for the account of the beneficiary of the divi-

dends.





ries?

No




The distributing company has sole liability in case of noncom-

pliance (art. 149 of the Luxembourg Income Tax Law “LITL”).





See Appendix 1















Each investor, should the CIV be treated as a transparent entity,

should then, in theory, benefit from treaty provisions (case by

case basis).

In practice, many difficulties may be encountered in order to de-

termine the portion of dividends attributable to each investor into

the CIV on the distribution date.

Residency of the investor in the same Member state than the CIV

is irrelevant. Public listing of a CIV is also irrelevant.








Potentially in case of transparent nonresident CIV: application of

tax transparency. See above.



Both possible depending on whether the relevant documents are

available at the date of payment or not.

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5

5

Article 151 of the Luxembourg Income Tax Law and Grand Ducal

Decree of 18 December 1998.






Upon receipt of information/documentation, the paying agent files

within 8 days of the payment of the dividend the form 900 apply-

ing the relevant reduced rate and providing the corresponding

details on the form.





No






Tax residence certificate for nonresident investors.



Treaties may provide for specific documentation.




distribution, etc.

Upon each distribution

Articles 149 and 151 of the Luxembourg Income Tax Law and

Grand Ducal Decree of 18 December 1998.

F. Refund procedure



By the tax authorities.




At any time prior to the deadline based on statute of limitations.






tions?

A financial intermediary is entitled to submit a refund claim on

behalf of an investor if it has received a power of attorney and a

residence certificate for the investor.



Yes. Form 901bis.



claims?

Yes

Is there a deadline for claiming a re- General rule to file the form 901bis: by the end of the year follow-

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6

6



tation?





ing the payment of the dividend.

§ 153 of the Luxembourg General Tax Law






A residence certificate must be presented in all cases.





A new residence certificate must be prepared for each refund

request.


a refund?

Variable (several months).




viders?

No





No standard fees



No, same rules for resident and nonresident.







Resident physical persons:

• half-income exemption if requirements are met.

Resident corporations:

• exemption if participation exemption requirements are met,

• half-income if other requirements are met. Article

115.15a of the Luxembourg Income Tax Law (applicable

to all fully taxable companies in Luxembourg). Require-

ments: Dividends received from: (i) a fully taxable Lux-

embourg resident company, or (ii) an fully taxable com-

pany resident in a country with which Luxembourg has

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7

7

concluded a Double Tax Treaty and which is subject to a

tax comparable to Luxembourg corporate income tax or

(iii) a company resident in another EU member state and

covered by article 2 of Parent-Subsidiary Directive.






Nonresident:

• Individual: WHT on gross dividend at 15% (unless partici-

pation exemption applies).

• Company without permanent establishment: idem

• Company with permanent establishment: application of

similar rules than for resident taxpayers.





No, unless a request is made under the relevant treaty directive.



spontaneously?

Information is provided on request.


A. Taxation of CIVs



Yes, unless tax transparent.



ments through CIVs?


CIV Tax exempt. Taxation of divi-

dends and capital

gains (unless specif-

ic exemption ap-

plies)



nonresident?

No




gory?

1. Individuals: marginal rate of 42.14%, but half income

if requirements are met.

2. Companies: 28.80% (Luxembourg city) but potential

participation exemption or half income (Art 115.15a

LIR ) if requirements are met.

3. Life insurance companies: Idem as companies.

4. Pension funds: SEPCAV: exempt / ASSEP: 28.80%

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8

8

(Luxembourg city) but potential participation exemp-

tion or half income if requirements are met.

5. CIVs: exempt but SICAR: taxable








visions.


Individuals Yes Yes

Non-financial com-

panies

Yes Yes

Life insurance com-

panies

Yes Yes


CIVs:

Yes Yes






Ordinary credit method.

Please note foreign tax credits are applicable against the

Corporate Income Tax due by corporate entities but are

not applicable against Municipal Business Tax.

Articles 134, 134bis and 134ter of the Luxembourg In-

come Tax Law and Grand Ducal Decrees of 26 May

1979.




The foreign tax credit is calculated using the per country

method (for financial companies, a global method is

available).



1979.




Same as above.




Net income



1979.





Direct and indirect.



1979.

Deloitte

9

9





No






Please explain.



No









No




No.





sions.

No.









See above II.G.

Yes, dividends from Luxembourg and foreign sources

are subject to the same tax treatment. An indirect foreign

tax credit is not granted.



N.A.

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10

10









Exemption.

Domestic and cross-border dividends are treated equal-

ly.

Deloitte

11

11

Appendix 1

Source state taxation: Outbound dividends Luxembourg


Recipient: Dom.

WHT


Aus Bel Bul Cyp 5 Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat 5 Lit Mal Net Pol Por Rom Slo 5 Slo Spa Swe UK

Individual 15% 15% 15% 15% N.A. 15% 15% 10% 15% 15% 5% 7,5% 15% 15% 15% N.A. 15% 15% 15% 15% 15% 15% N.A. 15% 15% 15% 15%

Non-financial

company

0%¹ /

15%

5%² /

15%

10%³ /

15%

5% ³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

10%² /

15%

7,5% 5%³ /

15%

5%² /

15%

15% N.A. 5%³ /

15%

5%³ /

15%

2,5%³/

15%

5%³ /

15%

15%² 5%³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

15% 5%² /

15%

Life insurance 0%¹ /

15%

5%² /

15%

10%³ /

15%

5% ³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

10%² /

15%

7,5% 5%³ /

15%

5%² /

15%

15% N.A. 5%³ /

15%

5%³ /

15%

2,5%³/

15%

5%³ /

15%

15%² 5%³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

15% 5%² /

15%

Pension fund 0%¹ /

15%

5%² /

15%

10%³ /

15%

5% ³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

10%² /

15%

7,5% 5%³ /

15%

5%² /

15%

15% N.A. 5%³ /

15%

5%³ /

15%

2,5%³/

15%

5%³ /

15%

15%² 5%³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

15% 5%² /

15%

CIV, with legal

personality3

0%¹ /

15%

5%² /

15%

10%³ /

15%

5% ³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

5%³ /

15%

10%² /

15%

7,5% 5%³ /

15%

5%² /

15%

15% N.A. 5%³ /

15%

5%³ /

15%

2,5%³/

15%

5%³ /

15%

15%² 5%³ /

15%

N.A. 5%³ /

15%

5%³ /

15%

15% 5%² /

15%

CIV, without

legal personali-

ty 4

15% - - - - - - - - - - - - - - - - - - - - - - - - - -

¹ If Participation exemption applies. Conditions for participation exemption application (dividends) in Luxembourg:

• 12 month holding period • Acquisition price of EUR 1.2 million or 10% participation • The entity receiving the dividends must be a fully taxable resident company, a company resi-

dent of EU (with legal form falling within the scope of article 2 of the amended Parent Sub-sidiary Directive) Member States or a company resident in EEA or a State with which Lux-embourg has concluded a DTT and that is liable to a tax corresponding to Luxembourg corporate income tax.

4 CIVs without legal personality are not entitled to benefit from the provisions of treaty benefits.

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² If the company holds 25% of the voting power of the distributing company. 5 Luxembourg has not signed Double Tax Treaties with Cyprus, Latvia and Slovakia. ³ If the company holds 25% of the capital of the distributing company.

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Appendix 2

Residence state taxation: Inbound dividends Luxembourg


Recipient: Dom.

method


Aus Bel Bul Cyp¹ Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat¹ Lit Mal Net Pol Por Rom Slo¹ Slo Spa Swe UK

Individual OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Non-financial

company


Life insurance OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Pension fund OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

CIV, with legal

personality


CIV, without legal

personality


Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption IC = indirect credit for underlying corporate tax Luxembourg applies the ordinary credit method. The excess of taxes paid in the treaty partner state over the Luxembourg tax liability is deductible in Luxembourg. ¹ Luxembourg has not signed Double Tax Treaties with Cyprus, Latvia and Slovakia. Foreign tax credit is granted for income that arose in countries with which Luxem-bourg has not concluded a Double Tax Treaty (foreign tax must be similar to that of Luxembourg’s corporate income tax).

Deloitte

Appendix 3




Resident fully taxable companies are entitled to claim a tax deduction for interest expenses. Such deductions are not available for similar nonresident

entities that are subject to WHT on a gross basis. However, this should not impact CIVs as both resident and nonresident are subject to WHT on a gross-

basis, resident CIVs being tax exempt.


-

3. WHT rates

Same WHT rate applied to both resident and nonresident legal entities: 15%


Resident individuals, non-financial companies, life insurance companies, pension funds are subject to taxation on the combined result of their activities.

For example, dividends may be set-off against losses from other activities. A nonresident is subject to a separate WHT tax on dividends from Luxem-

bourg companies even though the nonresident may have other taxable activities in Luxembourg. For example, a nonresident bank is subject to a final

WHT of 15% (reduced domestic rate) on Luxembourg dividends even though the nonresident generates losses in a Luxembourg permanent establish-

ment (branch office) provided that the shares in the Luxembourg companies are not attributable to the per-manent establishment under a tax treaty pro-

vision similar to Article 7 of the OECD Model. A nonresident bank may thus suffer higher overall Luxembourg taxation compared to a resident bank.

II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for juridical double taxation

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15

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-


Excess foreign tax credit that arises due to the fact that the taxpayer is incurring losses cannot be car-ried forward

Net principle and indirect cost allocation

Deloitte




Country: Netherlands




















es? Please explain

This depends on the legal form. In case it concerns a legal form

comparable to a Dutch company subject to CIT, the answer is in

principle yes. When the nonresident company is comparable to a

‘closed CV’ (private limited partnership) the company is treated as

transparent for tax purposes.





Please explain.





2010).

Under Dutch law, a nonresident CIV or pension fund that qualifies

as a ‘person’ for tax treaty purposes may be considered a resi-

dent of the contracting states if it is liable to tax. This qualification

is irrespective of the matter whether the income is wholly or par-

tially tax exempt.



Yes. However, it cannot be ruled out that the Dutch tax authorities

would take another view if the purpose of a fund was to take ad-

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2

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vantage of Dutch tax treaties.




please explain.

Only the tax treaty with France explicitely refers to investment

funds. Under circumstances, a Dutch investment fund receiving

French dividends is entitled to a payment out of the French trea-

sury.








Individuals 15% 15%

Non-financial companies 15% 15%

Life insurance companies 15% 15%

Pension funds 15% 15%

CIVs:

1.

15% 15%






Exemption: Applicable if (i) recipient is a company resident in

EU/Norway/Iceland, and (ii) recipient holds an interest to which

the Dutch participation exemption/participation credit would be

applicable if the company would have been Dutch resident. Con-

sequently, the shareholding should be at least 5% and there are

specific requirements for the activities of the shareholding(s).

For foreign exempt pension funds a reimbursement procedure is

applicable. Please see the answer to Q B.4.


net income basis?

On a gross basis














Yes. Because resident pension funds are exempt from CIT in The

Netherlands, they are also entitled to a reimbursement of Dutch

dividend withholding tax. Initially though, they have to pay divi-

dend withholding tax when receiving dividend distributions. Non-

resident (subjectively) tax exempt pension funds are only entitled

to the reimbursement of Dutch dividend withholding tax if they

would be (subjectively) tax exempt as well if they were Dutch

residents. Life insurance companies are regularly taxed with CIT

and thus, depending on the shareholding percentage held by the

shareholder/insurance company a WHT exemption or CIT credit

is available. In the latter case, the dividends are included in the

CIT base of the shareholder/insurance company, at which level

the dividend WHT is treated as a prelevy to CIT and as such cre-

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3

3

dited against the shareholder’s CIT liability. No deduction of WHT

is granted in case the exemption applies.

Profits paid by insurance companies to policy holders are tax

deductible (art. 9(1)(c) CIT). Furthermore, insurance companies

can create specific tax exempt reserves (equalization reserves;

art. 7 Decree profit determination and reserves insurers). This

means that, effectively, insurance companies do not pay tax on

dividends they receive on behalf of their policy holders, because

such dividends increase the contribution to the provision (see

"Aantekening 35.31.1 van de Vakstudie Vpb". Please note that

insurance companies are taxed on dividends that they receive for

themselves, not for their policy holders;










ties)?

No.








Yes.

For resident individual taxpayers and resident corporate taxpay-

ers not qualifying under the participation exemption/credit, divi-

dend withholding tax is levied over the dividend distribution. How-

ever, the withholding tax qualifies as a prelevy to IITA/CITA and,

as such, the withholding tax can be credited against the reci-

pient’s IITA/CITA tax liability.

In case the dividends are received by a Dutch fiscal investment

institution (art. 28 CITA) a withholding tax is levied as well. The

dividends are taxed at the level of the FII against a 0% CIT rate.

Upon redistributing the dividends (obligatory within eight months

following the receipt of the dividends) a withholding tax reduction

is applied.

In case the dividends are received by a Dutch exempt investment

institution (art. 6a CITA) a withholding tax is levied as well. The

dividends are exempt at the level of the EII. No credit for underly-

ing dividend withholding tax is available. Upon redistributing the

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4

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dividends no withholding tax is levied as the EII is exempt from

dividend withholding tax.











Levying of dividend withholding tax can be considered incompati-

ble with EU law for dividend distributions to the following reci-

pients:

- EU/EEA companies that are subjectively tax exempt in their

jurisdiction. Domestic companies can request for a reimburse-

ment of dividend WHT if they are tax exempt. For EU/EEA com-

panies the refund is only available if they are tax exempt in their

state of residence and would have been tax exempt if they were

residents of The Netherlands. This reclassification to Dutch law

could infringe EU law. This is because in a domestic situation it is

only necessary to prove that the company is exempt under do-

mestic (Dutch) law and in cross-border situations the tax exempt

company should be tax exempt both in its state of residence and

according to Dutch law (after requalification). The position could

also be taken that this double requirement implicitely also applies

in domestic situations, but this requalification infringes on EU law.

Companies that are exempt in their state of residence but would

not be exempt if they were Dutch residents face double taxation

since they will not meet all criteria for the reimbursement.

- EU/EEA companies that are taxed at a CIT rate of 0% that

would have been subjectively exempt if the company would have

been established in The Netherlands. The reasoning is compara-

ble to the above. However, some EU Member States could have

opted for a 0% tax rate instead of a tax exemption for, e.g.,

pension funds. The position could be taken that the reimburse-

ment procedure should be extended to foreign pension funds that

are subject to a 0% tax rate in their state of residence (and would

be tax exempt after reclassification to Dutch law).

- Under very strict circumstances, and depending on a case-by-

case review, situations where dividends are objectively exempt at

recipient’s level without the possibility to credit Dutch dividend

withholding tax. This argumentation is based on the Aberdeen-

case. This mainly depends on the domestic tax treatment in the

state of residence of the dividend receiving entity. In case they

are tax exempt, it could be argued referring to Aberdeen that a

reimbursement should be granted by The Netherlands. Other

specific/general examples are hard to give due to case-by-case

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5

5

differences.

Please note that in this respect we think EEA only should include

Norway and Iceland due to a lack of information exchange possi-

bilities between The Netherlands and Liechtenstein.

- Life insurance companies established elsewhere in the EEA,

insofar as they invest monies held for their policy holders in Dutch

shares. Dutch life insurers investing monies for their policyholders

in Dutch shares do not effectively pay withholding tax not CIT on

these dividends.

UNOFFICIAL TRANSLATION OF ARTICLE 10, PARAGRAPH 2

OF THE DUTCH DIVIDEND WITHHOLDING TAX ACT:

The first paragraph [i.e. containing the conditions for reimburse-

ment] also applies to legal entities established in another EU

Member State or EEA Member State indicated by Decree [in fact:

Norway and Iceland] that are not subject to corporate income tax

in their state of residence and that would not be subject to corpo-

rate income tax if they would be a resident of the Netherlands.

The first sentence is not applicable in relation to legal entities

which are comparable to investment institutions as mentioned in

art. 6a CITA or art. 28 CITA [EIIs and FIIs].




The company itself.





ries?

N/A




The company is responsible for noncompliance with the WHT

obligation. Tax can be levied until five years after the year that the

dividend distribution took place. The company receives an admin-

istrative penalty if it failed to file a correct and timely tax return.





See Appendix 1

Is a nonresident CIV, which disqualifies A Dutch FII is in principle non-transparent for treaty purposes.

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6

6














However, in case of a foreign transparent CIV, the CIV may claim

tax treaty benefits on behalf of its investors based on power of

attorneys and residence certificates for each investor.

The Danish and Dutch competent authorities have concluded an

agreement regarding Dutch closed funds for mutual account

(FGR) (SKM2011.40). Under this agreement a FGR, its portfolio

manager, or custodian bank, is entitled to claim tax treaty benefits

on behalf of the investors of the FGR. It is required that the FGR,

its portfolio manager, or custodian bank provides all relevant in-

formation, such as a list the identifies the investors (name, ad-

dress, residence state, a certificate from each investor to the ef-

fect that he/she is the beneficial owner of the income), and a spe-

cification of the income which is allocated to each investor. The

investors may be resident in the Netherlands or another country

which has concluded a tax treaty with Denmark. Under the

agreement it is not a requirement that a certificate of residence is

presented.








This is practically only possible in case of a relatively low number

of individual investors.



As a main rule, the relief from WHT is applied at source.

Where claims are filed for reimbursement based on EU law ar-

guments, the wrongfully levied WHT should be refunded.






The nonresident investor’s Dutch custodian bank determines if a

reduced treaty rate is applicable and provides this information to

the Dutch tax authorities.





Same procedure



Certificate of residence and, if specifically requested, other infor-

mation necessary according to the Dutch tax authorities

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7

7







distribution, etc.

Since the certificate of residence specifies which year the share-

holder can be considered tax resident in the other contracting

state, the certificate is only valid for distributions in the mentioned

year(s). Consequently, it depends on the wording of the certifi-

cate.

F. Refund procedure



Tax authorities




A refund request can be made within three years after year-end

of the year in which the dividend distribution has taken place.




tions?

Yes, if they have a power of attorney and a certificate of resi-

dence.



Yes



claims?

Yes




tation?





A refund request can be made within three years after year-end

of the year in which the dividend distribution has taken place.

The deadlines are the same for domestic and cross-border situa-

tions.






Certificate of residence and documents proving that the non-

resident entity is comparable to a Dutch company that is entitled

to a refund.




Each request should be accompanied by a certificate of resi-

dence.

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8

8



a refund?

It differs. It could be possible to get a refund within a couple of

months. However, if the claim is based on EU law related argu-

ments, practice learns that this period is substantially extended.




viders?

No, unless the reimbursement is to be obtained through litigation.





No standard fees.



No







Exemption. However, an imputation system is applicable in case

of certain low-taxed investment participations.

The classical system applies to participations smaller than 5% of

the capital.






In principle yes. However, for resident taxpayers receiving divi-

dends, the Dutch dividend withholding tax is considered a prelevy

to CIT. For nonresident taxpayers this is not the case and conse-

quently, the right to credit Dutch dividend withholding tax is de-

pending on the legislation in the state of residence of the reci-

pient.





Yes, under the EU Directives



spontaneously?

In principle only on request, but it is possible to provide the infor-

mation spontaneously.


A. Taxation of CIVs



Fiscal investment institution: separate entity

Exempt investment institution: separate entity

How is tax neutrality achieved between Entity CIV level Investor level

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9

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ments through CIVs?

Fiscal In-

vestment

institution

(art. 28 CI-

TA)

Taxed at 0% Dividend paid by an

FII is taxed with

WHT. However, a

reduction is applica-

ble to the amount of

the dividend with-

holding tax levied on

distributions to the

FII. The WHT is a

prelevy to CITA/IITA

at shareholder level

and as such credita-

ble.

Exempt

investment

institution

(art. 6a CI-

TA)

Subjectively ex-

empt

Dividend paid by an

EII is exempt from

WHT. Dividend

WHT paid by the EII

upon the receipt of

dividends cannot be

credited at share-

holder level (or EII

level). The dividends

received by the

shareholder are

regularly taxed.



nonresident?

No




gory?

Individuals: 25% in case of an shareholding of at least

5% and, in other cases, 30% on a deemed dividend dis-

tribution of 4% of the market value of the shares. Anti-

abuse measures are in force.

Companies: Flat rate of 25% (rate of 20% for first EUR

200,000)

Pension funds: After reimbursement of dividend WHT

effectively 0%

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10

10

CIVs:

- FIIs: Overall effective burden remains 15%. This con-

tains (i) foreign dividend WHT and (ii) domestic dividend

WHT at a rate of 15% crediting the WHT levied abroad.

FIIs are subject to 0% CIT and underlying dividend WHT

cannot be credited.

- EIIs: Exempt from Dutch CIT








visions.


Individuals Yes Yes

Non-financial com-

panies

Yes Yes

Life insurance com-

panies

Yes Yes


CIVs:

Yes Yes






Ordinary credit




Per country




See Appendix 2




Foreign gross income







N/A



Yes. In principle, the excess credit can only be carried

forward. In principle, the carry forward is not limited in

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11

11

time.






Please explain.



In principle not. Under Article 28 with regard to FII’s, the

WHT upon distribution of the dividend to the resident

investor is reduced with dividend WHT levied upon the

prior dividend distribution to the CIV. So, for example,if a

foreign WHT of 15 % has been levied, then effectively

there is no Dutch WHT upon the distribution to a resident

investor. Since a Dutch FII is obliged to pay on the re-

ceived dividends within 8 months upon receipt, the divi-

dend WHT due upon redistribution is reduced with the

WHT already paid on the dividend received by the FII

(that is taxed with 0% CIT).









No




No





sions.

No infringements, but there could be some disparities.









See above II.G.

Yes, they are identical.



N/A

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12

12









In principle, the exemption method is applied. However,

the exemption method is only applicable if the recipient

holds an interest of at least 5% and the shareholdings

cannot be considered low-taxed investment participa-

tions. In case of low-taxed investment participations a

participation credit method is applicable at shareholder

level. Exceptions are available.

No difference is made between domestic and cross-

border situations anymore for the application of the par-

ticipation exemption/credit method.

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13

13

Appendix 1

Source state taxation: Outbound dividends Netherlands


Recipient: Dom.

WHT


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Mal Pol Por Rom Slo-

vakia

Slo-

venia

Spa Swe UK

Individual 15% 15% 15% 15% N/A 10% 15% 15% 15% 15% 15% 15% 15% 15

%

15

%

15% 15% 15% 15% 15% 10% 15% 10% 15% 15% 15% 10%

Non-financial

company

15% 15% 15% 15% N/A 10% 15% 15% 15% 15% 15% 15% 15% 15

%

15

%

15% 15% 15% 15% 15% 10% 15% 10% 15% 15% 15% 10%

*

Life insurance 15% 15% 15% 15% N/A 10% 15% 15% 15% 15% 15% 15% 15% 15

%

15

%

15% 15% 15% 15% 15% 10% 15% 10% 15% 15% 15% 10%

Pension fund 15% 15% 15% 15% N/A 10% 15% 15% 0% 15% 15% 15% 15% 15

%

15

%

15% 15% 15% 15% 15% 10% 15% 10% 15% 15% 15% exem

pt

CIV, with legal

personality

15% 15% 15% 15% N/A 10% 15% 15% 15% 15% 15% 15% 15% 15

%

15

%

15% 15% 15% 15% 15% 10% 15% 10% 15% 15% 15% 15%

**

CIV, without legal

personality3

Comments: * However, a WHT exemption is applicable for distributions to a UK resident organization that is established and operated exclusively for religious, charitable, scientif-ic, cultural, or educational purposes (or for more than one of those purposes) and all or part of its income or gains are exempt from tax under UK domestic law. ** As a main rule, a dividend withholding tax of 10% is applicable. This rate is increased for dividends paid out of income or gains derived directly or indirectly from

immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax.

Deloitte

14

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Appendix 2

Residence state taxation: Inbound dividends Netherlands


Recipient: Dom.

Metho

d


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Mal Pol Por Rom Slo Slo Spa Swe UK

Individual oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Non-financial

company

oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Life insurance oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc

Pension fund ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex ex

CIV, with legal

personality*

oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/

ex

oc/ex oc/ex oc/ex oc/ex oc/ex oc/

ex

oc/

ex

oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex oc/ex

CIV, without legal

personality

Comments:

*For an FII, the ordinary credit method is applied, while for an EII the exemption method is applied. Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption IC = indirect credit for underlying corporate tax

Deloitte

15

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Appendix 3




Discussions are made in The Netherlands on the fact that dividend WHT is levied on a gross base in-

stead of a net base. However, no specific case is pending referring to this differential treatment.


In principle, there is no differential treatment of residents and nonresidents.

3. WHT rates

No infringement relating to WHT rates.

4. Combined taxation v. separate taxation A difference only seems to exist for shareholdings receiving a dividend from a company to which the participation exemption/credit does not apply. In that case, the individual or company holding the shares is faced with a levy of dividend WHT. Resident recipients can credit the (domestic) WHT with their IITA/CITA tax liability. This is not per se the case for nonresidents. Effectively, the combined levy of WHT and IITA/CITA neutralizes the WHT levy in domestic situations, but not in all cross-border situations In domestic situations, dividend wht is neutralized for: - all individuals (first div wht is paid and subsequently it is treated as a prelevy to iita and as such cre-dited against iita liability) - companies: * div wht exemption for payments to companies holding at least 5% of the shares * reimbursement of div wht for tax exempt companies, like pension funds * div wht reduction for Dutch investment companies (they have the obligation to pay on the dividends within 8 months. On this subsequent dividend distribution a reduction for the div wht is granted for the amount of the div wht already paid. * all other situations: div wht is withheld for div distributions to Dutch companies. This div wht is considered a prelevy to Dutch CITA and is as such creditable againt the recipient company’s cita liabi-lity.

In cross-border situations, the levy of div wht in principle is a final levy. Thus, individuals and com-

panies (not holding at least 5% that are not tax exempt) are faced with div wht as a final levy. If they

cannot credit this Dutch div wht against their domestic iita or cita in their state of residence, Dutch div

wht is not neutralized like that would occur in Dutch domestic situations. As a consequence, cross-

border situations can be facing more heavily taxation than domestic situations.

. This infringes on EU law where cross-border situations are effectively taxed higher than domestic

situations. However, it is to be determined whether this is incompatible with EU law or that it qualifies

as a disparity.

Deloitte

16

16




Due to the possibility to carry forward the part of the relief that cannot be used in the year it incurred,

a cashflow disadvantage arises. This can be qualified as a restriction of the free movement of capital

principles.

If div wht is considered as a prelevy to iita or cita in a domestic situation, and the individual or corpo-

rate income tax due would be lower than the amount of div wht that is creditable, it would in principle

lead to a refund of the additional div wht. In a cross-border situation, however, it would never get to a

reimbursement. In those situations, the relief is only granted insofar there is Dutch taxable income

against whicht the div wht can be credited. The remainder (the amount not creditable) can be credited

in later years, but again only insofar there is Dutch taxable income against which it can be set off.

Since in domestic situations a refund is granted and this reimbursement is not available for EU situa-

tions, the cashflow disadvantage in EU situations could be considered an infringement on EU law.

Numerical example:

The Dutch resident company X BV holds an interest of 4% in Y. Y distributes a dividend on which a

wht is levied of 15. Since there is no participation (at least 5%), the participation exemption is not

applicable. Suppose that X BV is a regular taxed company.

Dividends received: 100 (dividend wht: 15), no participation exemption applicable

Losses available for loss compensation: 80

Taxable amount: 20

Tax due (25%): 5

In case Y is a Dutch resident company:

Dividend wht (15) is considered a prelevy of CIT. Even though the CIT due is only 5, a refund of the

remaining 10 is granted. Consequently, the levy of Dutch dividend wht is neutralized in the year it

arises.

In case Y is a foreign resident company:

Dividend wht (15) can be offset against Dutch CIT but only for the amount of CIT due. Consequently,

only 5 can be credited. The remaining 10 can be deducted in later years insofar there is a tax due in

that later year. Consequently, there is a cashflow disadvantage in cross-border situations.


N/A


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17

17

N/A

Deloitte




Country: Spain




















es? Please explain

Spanish Non Resident Income Tax Law (NRIT Law) envisages

the application of the Special look-through tax regime to foreign

entities/vehicles whose legal nature is identical or analogous to

look-through entities incorporated under Spanish Law. As per the

literal wording of the Law, the key issue for this regime is the legal

or corporate form/nature of the foreign vehicle; however, it has

been understood by the Spanish tax Authorities that in order for

this regime to be applied to a foreign vehicle, its taxation in its

country of origin, and specifically, its tax transparency (in origin)

abroad, would determine its tax transparency in Spain too. Thus,

it is not a clear issue whether attention should be paid exclusively

to the tax nature of the foreign vehicle, or to its corporate or regu-

latory nature, or to both.

Spanish Tax Authorities have declared in several Resolutions that

there is no a general rule and that the analysis must be made on

a case by case basis.

Deloitte

2

2

Notwithstanding the above, it must be highlighted that, the Span-

ish tax Authorities tend to apply a look-through treatment to tax

transparent foreign entities, even if these entities have legal per-

sonality and do not have an identical or analogous legal nature to

those entities which are deemed to be look-through entities under

Spanish law (i.e. they tend to focus more in the applicable tax

regime to the entity in its country of incorporation rather than in its

specific legal nature).

Finally, we would like to comment that NRIT Law considers EU

Pension Funds (similar to Spanish Pension Funds) and EU In-

vestments Funds (UCITS) as separate entities when receiving

Spanish dividends source. We will develop these issues in next

questions.





Please explain.





2010).

Spain is of the opinion that a nonresident CIV or pension fund

that qualify as a “person” under Article 1 of the OECD Model may

be considered a “resident” under Article 4 of the OECD Model if it

is, in principle, liable to tax even though its income is partially or

fully tax exempt.

It must be highlighted that the Tax Authorities of origin must be

able to certify the tax residence of the foreign CIV for the purpos-

es of the Double Tax Treaty with a certificate of residence for tax

treaty purposes.

Please note that the fact that the tax law of the country where

such a CIV is established would treat it as a taxpayer would be

indicative that the CIV is a “person” for treaty purposes.







Yes. However, it cannot be ruled out that the Spanish tax authori-

ties would take another view if the purpose of a fund was to take

advantage of Spanish tax treaties (anti-avoidance rules).




please explain.

No.

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Individuals 19% 19%




CIVs 19% 19%






An exemption from withholding tax under NRIT Law is applicable

to non-resident which owns at least or above 5% of the capital of

the distributing entity. Please note that the requirements con-

tained in the NRIT Law should be fulfilled (Parent-Subsidiary Di-

rective).

Furthermore, the NRIT Law established a general exemption of

1,500 Euros applicable for dividend payments made by Spanish

tax resident entities to both EU individuals and individuals that are

resident in countries with an effective information exchange with

Spain. Nevertheless, it must be highlight that the withholding tax

operates over the total amount of the dividend received.

Finally, the NRIT Law has established an exemption from taxation

for dividends and participations in profits earned without a Span-

ish permanent establishment, by qualified pension funds (similar

to Spanish Pension Funds) located in other EU Member States or

earned by permanent establishment of such pension funds lo-

cated in other EU Member States. Additionally, a partial (18 %

causing the effective tax rate to be 1 % similar to the taxation of

resident UCITS) exemption from taxation is provided for divi-

dends and participations in profits obtained by UCITS funds resi-

dent in other EU Member States and in the European Economic

Space that operate without a permanent establishment in Spain.

Notwithstanding the above, NRIT Law specifically establishes that

dividends obtained by EU Pension Fund or by UCITS fund will be

subject to 19% domestic withholding tax rate.


net income basis?

Gross basis.

Is the taxation of dividends for domestic The Spanish CIVs benefit from a special tax regime, according to

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which worldwide income obtained by such entities (dividends

included) is taxed at a 1% tax rate. These entities may not apply

any deduction to avoid double taxation although they may credit

any domestic withholding tax on dividends or other income

against their final Corporate Income Tax quota, which means in

practice that any domestic withholding tax borne in excess of the

final tax rate (1%) is refunded.

The Spanish Pension Funds benefit from a special tax regime,

according to which worldwide income obtained by such entities

(dividends included) is taxed at a 0% tax rate. These entities may

credit any domestic withholding tax on dividends or other income

against their final Corporate Income Tax quota, which means in

practice that any domestic withholding tax borne in excess of the

final tax rate (0%) is refunded.

Life insurance companies are subject to the ordinary corporate

tax rate and are entitled claim a tax deductions for payments to its

policyholders and provisions set up for future obligations towards

the policyholders.










ties)?

Following an infringement procedure opened against Spain by the

European Commission on discriminatory tax treatment of divi-

dends received by EU residents, Spain has amended its NRIT

Law. In particular, an exemption from taxation under the NRIT is

provided for dividends and participations in profits earned without

a Spanish permanent establishment, by qualified pension funds

located in other EU Member States or earned by permanent es-

tablishment of such pension funds located in other EU Member

States.

Additionally, a partial exemption from taxation is provided for divi-

dends and participations in profits obtained by UCITS funds resi-

dent in other EU Member States that operate without a perma-

nent establishment in Spain.

The new changes are effective as from 1 January 2010 onwards.

Notwithstanding the above, NRIT Law specifically establishes that

dividends obtained by EU Pension Fund or by UCITS fund will be

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In conclusion, although the NRIT Law establishes certain exemp-

tions from NRIT for EU pension funds and UCITS funds (Directive

2009/65/CE), it must be highlight that such Law does not state an

automatic refund procedure or direct exemption on dividends.

In principle, EU pension funds and UCITS fund may ask for the

refund of any tax excess that they have suffered.








Dividends are included in the taxable income and the withholding

tax may be credited by the resident investor when filing their an-

nual Personal Income Tax/Corporate Income Tax. If the final tax

due is lower than the withholding taxes, the excess would be

refunded by the Tax Authorities.











See appendix 3.




According to NRIT Law, the Spanish entity that pays the dividend

should make the withholding tax.





ries?

N/A




The Spanish entity that pays the dividend is liable in case of non-

compliance with the withholding tax obligation.

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See appendix 1.















Under the Special look-through regime it is the non-Spanish resi-

dent members/partners/unitholders of the entity those who are

considered to be each individually taxpayers of the Spanish NRIT

for the part of the income obtained from the Spanish investments

which is attributable to each one of them. Therefore the withhold-

ing tax applicable to each of their interest would be determined in

accordance with their respective tax residence, as per the domes-

tic rules or applicable tax treaty.

It must be note that, as a general rule, the tax residency of the

investors in the investment structure would be proven to the

Spanish income payer by a certificate of tax residency issued in

the sense of the Spain/relevant investor country tax treaty (for the

purposes of applying the respective Treaty benefits).








Under the Special look-through regime it is the non-Spanish resi-

dent members/partners/unitholders of the entity those who are

considered to be each individually taxpayers of the Spanish NRIT

for the part of the income obtained from the Spanish investments

which is attributable to each one of them. Therefore the withhold-

ing tax applicable to each of their interest would be determined in

accordance with their respective tax residence, as per the domes-

tic rules or applicable tax treaty.

It must be note that, as a general rule, the tax residency of the

investors in the investment structure would be proven to the

Spanish income payer by a certificate of tax residence issued in

the sense of the Spain/relevant investor country tax treaty (for the

purposes of applying the respective Treaty benefits).



Whether the certificate of tax residence is provided to Spanish

income payer before the dividend will be paid the relief from WHT

applied at source. On the other hand, the relief from WHT applied

of a refund procedure.




A certificate of tax residence on order to apply the withholding tax

reduced is required.

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Same procedure.






A certificate of tax residence.




distribution, etc.

Such certificates of tax residence would have a validity period of

one year since the date of issuance.

F. Refund procedure



Tax authorities.




Until January 1, 2011 upon declaration or receipt of dividend.

From January 1, 2011 year ended.




tions?

A financial intermediary (depositary) may submit a refund claim

on behalf of an investor. A certificate of residence would be re-

quired.



Yes. Form 210 and form 215. Please note that from January 1,

2011 onward a unique tax form will be used (form 210).



claims?

Yes.




tation?





A claim for repayment is statute-barred after 4 years. This is an

ordinary tax rule that is applicable in all cases.

What kind of documentation must be A certificate of residence must be presented in all cases.

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A new residence certificate must be prepared for each refund

request.


a refund?

At least 6 months.




viders?

No.





N/A



N/A







Spain has adopted a schedular system where income is subject

to taxation at both the level of the company and the shareholders

(individuals), although the taxation of the shareholders is made at

reduced rates. Corporate shareholders are either subject to ex-

emption or half-income system.






In principle the same system applies to resident and nonresident

shareholders, although the tax rates applicable to resident and

non-resident shareholders are not identical.





Yes.



spontaneously?

Under requested.

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A. Taxation of CIVs



Yes. CIVs are treated as separate entities for domestic tax pur-

poses.



ments through CIVs?


CIV 1 % tax Ordinary taxation



nonresident?

No.




gory?

Individuals (resident in Spain): 19% or 21%.

Entities (resident in Spain): 30%

Life Insurance entities (resident in Spain): 30%

Pension Funds (resident in Spain): 0%

CIVs (resident in Spain): 1%








visions.


Individuals Yes Yes

Non-financial com-

panies

Yes1

Yes

Life insurance com-

panies

Yes1

Yes


CIVs: Yes Yes

1With regard to dividends from non-resident companies

the taxpayer may opt to obtain relief for economic double

taxation on the basis of indirect foreign tax credit rather

than the ordinary exemption method.






It must be highlighted that to qualify for juridical double

taxation, the percentage of holding in the capital of the

non-resident entity must be less than 5%.

In such case, the juridical double taxation should be

ordinary credit.

If a credit method is applied in domestic tax law, Per country.

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See appendix 2.




Given that it is not a clear issue, the ordinary credit me-

thod should be analyzed on a case by case basis. Nev-

ertheless, Spanish Tax Authorities understand that net

income approach should be accepted for this purpose.







In case the basis is the net income, expenses directly

related to the relevant income must be subject to deduc-

tion.



Any excess can be carried forward for using in the fol-

lowing ten years






Please explain.



The foreign taxation is suffered by the CIV and not by the

investor.









No.




No.




See appendix 3.

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sions.









See above II.G.

Generally dividends received from resident companies

and non-resident companies receive similar tax treat-

ment. However, for non-financial companies and life

insurance companies either a 50% (ownership below

5%) or 100% ordinary credit (ownership at least 5%)

applies to dividends subject to taxation from resident

companies. For such taxpayers dividends from non-

resident companies are: (i) 100% exempt under certain

requirements ) (ownership at least 5%), (ii) 100 % taxa-

ble with a foreign tax credit for underlying corporate tax-

es, (ownership at least 5%) or (iii) 100 % taxable with a

foreign tax credit for withholding taxes (ownership below

5%).




Any amounts not deducted due to insufficiency of the

gross tax payable may be carried forward for use in the

following ten years.








Exemption or credit method at the choice of the taxpay-

er.

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Appendix 1


Spain


Recipient: Dom.

WHT1


Aus Bel Bul Cyp2 Cze Den2 Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Swe UK

Individual 19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

Non-financial

company

19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

Life insurance 19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

Pension fund 19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

CIV, with legal

personality

19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

CIV, without legal

personality3

19 15 15 15 N/A 15 N/A 15 15 15 15 10 15 15 15 10 15 15 5 15 15 15 15 15 15 15 15

Comments:

1 Domestic withholding tax of 19% may be reduced to 15% under tax treaties provisions. Furthermore, 10%/5% 0% may apply under tax treaties provisions (qualifyingentities). Please note that qualifying entities for tax treaties purposes are those which hold directly a particular percentage (e.g. 50%/25%/10%) of the issued share capitalof the entity paying the dividends.2 Spain has no tax treaty with Cyprus and Denmark. The domestic withholding tax rate of 19% is thus applicable.3 A CIV without legal personality, as defined in a tax treaty provision similar to Art. 1 of the OECD Model, is not entitled to tax treaty benefits. Under Spanish tax lawthe income of the CIV will usually flow through to the investors and the treaty entitlement depends on the position of the investors.

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Appendix 2


Spain


Recipient: Dom.

Metho

d1

Dividends received by Spanish investor from:

Aus Bel Bul Cyp2 Cze Den2 Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Swe UK

Individual OC/Ex OC OC OC N/A OC/

Ex

N/A OC OC OC OC/

Ex

OC OC OC OC OC OC OC OC OC OC/

Ex

OC OC OC/

Ex

OC OC OC

Non-financial

company

OC/Ex OC OC OC N/A OC/

Ex

N/A OC OC OC OC/

Ex


Ex

OC OC OC/

Ex

OC OC OC

Life insurance OC/Ex OC OC OC N/A OC/

Ex

N/A OC OC OC OC/

Ex


Ex

OC OC OC/

Ex

OC OC OC

Pension fund OC/Ex OC OC OC N/A OC/

Ex

N/A OC OC OC OC/

Ex


Ex

OC OC OC/

Ex

OC OC OC

CIV, with legal

personality


Ex

N/A OC OC OC OC/

Ex


Ex

OC OC OC/

Ex

OC OC OC

CIV, without legal

personality


Ex

N/A OC OC OC OC/

Ex


Ex

OC OC OC/

Ex

OC OC OC

Comments:

1 Please note that some requirements must be met in order to apply the exemption. Among others:

The direct or indirect percentage of participation in the capital of the non-resident company, must be, at least of 5%. The corresponding participation must be held uninterruptedly during the year prior to the date on which the profit distributed becomes receivable, or, if this is not

possible, held for the necessary period to complete the year.

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The entity in which the interest is held must be subject to a tax which is identical or analogous to the Spanish Corporate Tax and not exempt therefore and mustnot reside in a country or territory statutorily classified for Spanish effects as a tax haven.

The income from which the dividends or profit participations arise must be derived from carrying on business activities abroad.

This condition will only be met if, at least, the 85% of the period income correspond to:

1. Income obtained abroad. Particularly, for this effects, income from the following activities will be considered obtained abroad:

- Wholesale trade.- Services.- Credit and financial activities.- Insurance and reinsurance activities, when the insured risk is located in the country or territory of the participated entity residence or in any coun-

try or territory different from the Spanish, provided that the operations are carried out by the organization of personal and material means having athis disposal.

2. Dividends and capital gains (profit participation) of other non-resident entities with regard to which the passive subject have an indirect participationthat fulfill the percentage and maintenance requirements pointed out before

2 Spain has no tax treaty with Cyprus and Denmark. The domestic method is thus applicable.

Notes: OC = ordinary creditMC = matching creditFC = full creditEx = exemption

IC = indirect credit for underlying corporate tax

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Appendix 3


I. Outbound dividend –source state- infringement on the TFUE by the domestic withholding tax.Those comments are also applicable regarding the point of OUTBOUND DIVIDENDS (G.Relief for economic double taxation) that we mentioned yesterday for more clarification.

1. ECJ considers Spanish tax on crossborder dividends incompatible with EU Law (Commissionv Spain case C-487/08, on 3 June 2010).

According to Spanish law, dividends distributed by domestic subsidiaries to its parent companies

resident in Spain are exempt from withholding tax on distribution provided that: (i) the participation

was held for a continuous period of at least one year; and (ii) at least 5% direct or indirect share-

holding is held in its subsidiary. In addition, such income is also exempt when received by the par-

ent resident company as it is allowed to deduct the dividends in whole received from its taxable

base. On the other hand, in the case of a parent company resident in another Member State, a

withholding tax is charged unless the regime provided under Council Directive 90/453/EEC of 23

July 1990 on the common system of taxation applicable in the case of parent companies and sub-

sidiaries of different Member States (the Parent- Subsidiary Directive’) applies. At the time of the

facts, such regime required (amongst others) a 20% shareholding for the withholding tax exemp-

tion to be applicable (later, a 10% shareholding was required).

In this connection, the Commission brought an action against Spain since it considered to be a

breach of the free movement of capital the fact that the exemption of withholding tax on domestic

and cross-border distributed dividends is subject to different minimum shareholding thresholds:

5% in the case of domestic participation against 20% in the case of cross-border dividend distribu-

tions to parent companies located in other Member States. In analyzing the case, the ECJ started

by considering that the Spanish tax law imposed a difference in the treatment between companies

resident in Spain and those in other Member States which had between 5% and 20% sharehold-

ing in a Spanish distributing company. Such different treatment is a restriction to the free move-

ment of capital (Article 63 TFEU).

It must be highlighted that from January 1, 2011 onwards, and as it appears in our matrix send

yesterday, Spanish Law has been modified in order to adapt to the decision of the ECJ. However,

the decision of the ECJ has not established a temporal effect, therefore, it should be understand

that Spanish Law on this item is contrary to EU Law since the adoption of, with the consequences

that would be arises in order to obtain the refund or liability procedures.

2. Spain has amended the taxation of dividends received by EU UCITS and EU Pension Funds

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Following an infringement procedure opened against Spain by the European Commission on dis-

criminatory tax treatment of dividends received by EU residents, Spain has amended its NRIT

Law. In particular, an exemption from taxation under the NRIT is provided for dividends and partic-

ipations in profits earned without a Spanish permanent establishment, by qualified pension funds

located in other EU Member States or earned by permanent establishment of such pension funds

located in other EU Member States. Additionally, a partial exemption from taxation is provided for

dividends and participations in profits obtained by UCITS funds resident in other EU Member

States that operate without a permanent establishment in Spain. Notwithstanding the above, NRIT

Law specifically establishes that dividends obtained by EU Pension Fund or by UCITS fund will be



In our view, such amendments are special relevance for the following items:

- EU pension funds and EU UCITS funds may benefit the same tax treatment as Spanish simi-lar vehicles.

- In our view, based on our previous experience on similar cases, the fact that the Spanish gov-ernment has approved a Law granting a an exemption and a partial exemption from taxationunder the NRIT for dividends and participation in profit earned by EU pension funds and byEU UCITS funds (subject to certain requirements in both cases) could provide:

o An additional argument to defend that, on the basis of EU Law, such kind of vehiclesare entitled to obtain a refund of the Spanish dividend withholding borne in the past,thereby also improving the position of the EU pension funds and EU UCITS funds thathave already filed refund claims in this sense.

o A reduction of the litigation needed or shorten its procedure to successfully claim theSpanish WHT borne on dividends received by these institutions in years still notbarred by the Spanish statute of limitation (four years), because this Law could con-tribute to create a more favourable position of the Spanish administrative courts to thistype of claim.

II. Outbound dividend –source state- infringement on the TFUE by the domestic withholding tax.Those comments are also applicable regarding the point of OUTBOUND DIVIDENDS (G.Relief for economic double taxation) that we mentioned yesterday for more clarification.

3. ECJ considers Spanish tax on crossborder dividends incompatible with EU Law (Commissionv Spain case C-487/08, on 3 June 2010).

According to Spanish law, dividends distributed by domestic subsidiaries to its parent companies

resident in Spain are exempt from withholding tax on distribution provided that: (i) the participation

was held for a continuous period of at least one year; and (ii) at least 5% direct or indirect share-

holding is held in its subsidiary. In addition, such income is also exempt when received by the par-

ent resident company as it is allowed to deduct the dividends in whole received from its taxable

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base. On the other hand, in the case of a parent company resident in another Member State, a

withholding tax is charged unless the regime provided under Council Directive 90/453/EEC of 23

July 1990 on the common system of taxation applicable in the case of parent companies and sub-

sidiaries of different Member States (the Parent- Subsidiary Directive’) applies. At the time of the

facts, such regime required (amongst others) a 20% shareholding for the withholding tax exemp-

tion to be applicable (later, a 10% shareholding was required).

In this connection, the Commission brought an action against Spain since it considered to be a

breach of the free movement of capital the fact that the exemption of withholding tax on domestic

and cross-border distributed dividends is subject to different minimum shareholding thresholds:

5% in the case of domestic participation against 20% in the case of cross-border dividend distribu-

tions to parent companies located in other Member States. In analyzing the case, the ECJ started

by considering that the Spanish tax law imposed a difference in the treatment between companies

resident in Spain and those in other Member States which had between 5% and 20% sharehold-

ing in a Spanish distributing company. Such different treatment is a restriction to the free move-

ment of capital (Article 63 TFEU).

It must be highlighted that from January 1, 2011 onwards, and as it appears in our matrix send

yesterday, Spanish Law has been modified in order to adapt to the decision of the ECJ. However,

the decision of the ECJ has not established a temporal effect, therefore, it should be understand

that Spanish Law on this item is contrary to EU Law since the adoption of, with the consequences

that would be arises in order to obtain the refund or liability procedures.

4. Spain has amended the taxation of dividends received by EU UCITS and EU Pension Funds

Following an infringement procedure opened against Spain by the European Commission on dis-

criminatory tax treatment of dividends received by EU residents, Spain has amended its NRIT

Law. In particular, an exemption from taxation under the NRIT is provided for dividends and partic-

ipations in profits earned without a Spanish permanent establishment, by qualified pension funds

located in other EU Member States or earned by permanent establishment of such pension funds

located in other EU Member States. Additionally, a partial exemption from taxation is provided for

dividends and participations in profits obtained by UCITS funds resident in other EU Member

States that operate without a permanent establishment in Spain. Notwithstanding the above, NRIT

Law specifically establishes that dividends obtained by EU Pension Fund or by UCITS fund will be



In our view, such amendments are special relevance for the following items:

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- EU pension funds and EU UCITS funds may benefit the same tax treatment as Spanish simi-lar vehicles.

- In our view, based on our previous experience on similar cases, the fact that the Spanish gov-ernment has approved a Law granting a an exemption and a partial exemption from taxationunder the NRIT for dividends and participation in profit earned by EU pension funds and byEU UCITS funds (subject to certain requirements in both cases) could provide:

o An additional argument to defend that, on the basis of EU Law, such kind of vehiclesare entitled to obtain a refund of the Spanish dividend withholding borne in the past,thereby also improving the position of the EU pension funds and EU UCITS funds thathave already filed refund claims in this sense.

o A reduction of the litigation needed or shorten its procedure to successfully claim theSpanish WHT borne on dividends received by these institutions in years still notbarred by the Spanish statute of limitation (four years), because this Law could con-tribute to create a more favourable position of the Spanish administrative courts to thistype of claim.

Deloitte




Country: Sweden


The study must address the taxation of dividends paid by a publicly listed company to the following catego-

ries of investors who are all assumed to be based in an EU member state:






company. The term “CIV” covers vehicles: (i) with or without legal personality; (ii) which are recognized

as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially exempt

from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS Directive

(Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual funds,

ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or special in-

vestment funds).






es? Please explain

The general rules of domestic tax law are decisive for the recogni-

tion of a non-resident pension fund or CIV as a separate entity for

Swedish tax purposes. As a consequence, a non-resident entity

should have the same characteristics as a Swedish taxable entity in

order to be recognized for Swedish tax purposes.





Please explain.

See paragraphs 6.9-6.14 of the 2010

OECD Model; and paragraphs 22-30 of

The Granting of Treaty Benefits with

respect to the Income of Collective In-

vestment Vehicles (Paris: OECD, 2010).

An investment fund is a taxable entity but is not a legal person un-

der Swedish civil law. This implies that such an investment fund is a

person and a company for the purposes of the application of tax

treaties based on the OECD Model. It also means that such a fund

is resident in Sweden under Swedish tax laws and a resident of

Sweden for the purposes of the application of Swedish tax treaties

based on the OECD Model. Where a foreign pension fund or CIV is

resident in a state with which Sweden has concluded a double tax

treaty and such CIV receives income from Sweden, the foreign CIV

would be entitled to the benefits of such treaty, provided the CIV is a

resident of the other state in the sense of the treaty.

Is a nonresident CIV, which qualifies for Yes this will generally be the case provided the non-resident CIV

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qualifies for treaty benefits.




please explain.

The tax treaty with the US contains special provisions for pension

funds. These provisions can be found in article 4 (pension fund can

be qualified as a resident even if they are generally exempt from

tax) en article 10 (special rules for dividends received by pension

funds).







Resident* Nonresident

Individuals 0%** 30%




CIVs:

1. Investment fund

2. Investment company

* WHT for Swedish residents is

only levied in case the person eli-

gible to the dividends holds these

dividends under such conditions

that another party is favored unjus-

tified with lower income taxation or

freed from WHT (tax avoidance).

** Income taxes on dividends dis-

tributed to resident individuals are

withheld at source (at 30%) al-

though this is not considered a

WHT in the sense of the Dividend

Withholding Tax Act.

0%

0%

30%

30%






Dividends paid to a nonresident shareholder are subject to a 30%

withholding tax unless the rate is reduced under a tax treaty or the

participation exemption applies. No withholding tax is imposed on

dividend distributions to a legal entity in another EU member state

that holds 10% or more of the capital of the Swedish company pro-

vided the company fulfills the requirements in article 2 of the EU

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Parent-Subsidiary Directive.

Under the Swedish participation exemption, no WHT is imposed on

dividend distribution to a foreign company on business related

shares if a) the foreign company is taxed in its country of residence

and the taxation is similar to the Swedish company taxation; or b)

the foreign company is resident and liable to tax in a state with

which Sweden has concluded a tax treaty. The participation exemp-

tion rules provide, inter alia, that the shares in the company playing

the dividend must be unlisted or, if listed, the shares held by the

company receiving the dividend must represent 10% or more of the

total number of votes for the company and be held for at least 12

months at the time the distribution is made.


net income basis?

Gross basis.














In Sweden no WHT is levied when both the company receiving the

dividend and the company distributing the dividend are tax resident

of Sweden.

Resident pension funds and life insurance companies are exempt

from tax on dividends as well as from corporation tax, in accordance

with the Law on Taxation of Income (1999:1229). However, the Act

on Yield Tax on Pension Funds (1990:661) imposes a special tax on

resident pension funds and life insurance funds. The taxable base is

not based on actual profits but on a notional calculation of the as-

sets the funds manage for the insured. In calculating the tax, a

standardized method is used (capital basis multiplied by the aver-

age governmental lending rate during the calendar year immediately

preceding the taxation year). The yield arrived at is taxed at 15 per-

cent for pension insurance and 27 percent for endowment insur-

ance, leading to an effective tax rate of approx. 0.4% and 0.75%

(for this example we have calculated with a government loan inter-

est rate of 2.76% (2010)). Assets = 100; average governmental

lending rate = 2,76%; tax base = 100 @ 2,76% = 2,76. Tax = 15%

or 27% of tax base; tax = 15% @ 2,76 = 0.41, or 27% @ 2.76 =

0.75.

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ties)?

No. Non-resident pension funds and life insurance companies are

subject to domestic withholding tax on Swedish sourced dividends,

in accordance with the Dividend Withholding Tax Act. The withhold-

ing tax rate amounts to 30%, although it may be reduced to 15% or

even 0% pursuant to the Swedish double tax treaties.








WHT is generally not applicable in purely domestic situations (an

exemption exist in case of tax avoidance – see above). In case of

dividends paid to resident individual investors (which are withheld at

source but not in the sense of the Dividend Withholding Tax Act),

these dividends are generally taxed as capital income at a flat rate

of 30%. Any tax withheld is credited against the recipient’s final in-

come tax liability.











See appendix 3.




The withholding company is generally the company itself.

However, an exemption exists for VPC companies (‘avstämningsbo-

lag’) which have transferred the withholding obligation (and all other

matters related to the share capital of the company) to a company

(‘a central securities custodian’) which has a special authorization

based on the Financial Instruments Act. In practice, the only com-

pany which has such an authorization in Sweden is Euroclear Swe-

den AB. Clients of Euroclear Sweden AB are in general public li-

mited liability companies and other companies which have or plan to

have many shareholders.

For investment funds the withholding agent is the fund manager

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(‘fondbolaget’) or the registered custodian (‘förvaltaren vid färvaltar-registrering’).





ries?

No, also a foreign company can qualify as a financial intermediary.

For example, it is possible for a foreign company to get the special

authorization based on the Financial Instruments Act.




Depending on who the withholding agent is, it could be the company

itself, Euroclear Sweden AB, the fund manager or the registered

custodian.





See appendix 1.















A non-resident CIV which disqualifies for treaty benefits is not en-

titled to a reduced treaty rate on its own behalf. However, in practice

a CIV –depending on how it is structured - may claim treaty benefits

on behalf of its investor incase these investors are entitled to a re-

duced treaty rate. The CIV needs to have power of attorneys and

residence certificates for each investor. It does not matter whether

the investors of the CIV are resident in the same member state as

the CIV or in other member states.








Yes, if the investors are entitled to treaty benefits they can request a

WHT reduction provided they can present a residence certificate.



The answer to this question generally depends on the applicable tax

treaty. The Tax Agency however has a practical approach in which

they approve that relief from WHT is applied at source if a resident

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certificate is available. This approach concerns dividends distributed

to companies resident in Europe but excluding Switzerland. A re-

fund may only be reclaimed via an official tax reclaim form, "Claim

for repayment" SKV 3740. All Swiss residents must claim repayment

retrospectively via form SKV 3742.






The distributing Swedish resident company will determine if a re-

duced treaty rate is applicable. The company needs to present a

residence certificate of the investor to the Tax Agency to be able to

claim relief at source.

In case of dividends distributed by VPC companies or investment

funds it is Euroclear Sweden AB respectively the fund manager or

the registered custodian that applies the relief at source. However in

these cases, relief at source may only be applied if Euroclear Swe-

den AB, the fund manager or the registered custodian can conclude

from the provided documentation that the beneficial owner of the

shares is a resident of the country declared.





Domestic relief from WHT is only provided via the participation ex-

emption (see B.). In case the participation exemption is applicable,

no tax liability with regard to WHT will exist (so no relief at source of

refund procedure will be necessary). The procedures are described

directly below.






In general, dividends are reported to the Tax Agency according to

the following procedures:

In case of dividend distributed by VPC companies it is Euroclear

Sweden AB that reports the dividends to the Tax Agency on form A

(SKV 3715) together with form 18b.

In case of investment funds it is the fund manager or the registered

custodian that reports the dividends to the Tax Agency on form A

(SKV 3715) together with form 18b.

In case of all other situations it will be the company that reports the

dividends to the Tax Agency on form K (SKV 3700) together with

form 18a (without deduction of WHT) or 18b (with deduction for

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WHT). A resident certificate needs to be provided by the investor.




distribution, etc.

A valid resident certificate should be available upon each distribu-

tion if a residence certificate is required.

F. Refund procedure



The tax authorities will make the refund. The application for a refund

can be filed by the investor, the company distributing the dividend,

the withholding agent or anyone else who can provide a power of

attorney and a residence certificate for the investor.




The application for a refund can be filed from the moment that the

WHT is reported and paid to the Tax Agency until 5 years after the

end of the calender year in which the dividends became due and

payable.




tions?

A financial intermediate is allowed to submit refund claims on behalf

of their investors if they have received a power of attorney and a

residence certificate for the investor.



Yes, it’s obligatory to use the special form SKV 3740 or form SKV

3742 for Swiss residents. However, in cases where a refund is

claimed based on jurisprudence from the ECJ, the form will need to

be completed with an enclosure outlining the arguments for reim-

bursement.



claims?

Yes, all reclaim forms should be sent to the Swedish Tax Agency in

Ludvika.




tation?





A claim for a refund of WHT can be made until the end of the fifth

calendar year after distribution of the dividend.



A residence certificate.

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A valid resident certificate should be available upon each distribu-

tion.


a refund?

Depending on when the refund is claimed (which season) and its

complexity, it usually takes between 2 weeks and 2 months.




viders?

No.





There are no standard fees.



No







Classical.






Yes. The taxation of the resident company is identical. However, the (Swedish) taxation of dividends received by non-residents cannot exceed the domestic taxation.





Yes.



spontaneously?

In principle on request.

However, the Tax Agency automatically sends information regarding

payments of dividends to other countries (which have a tax treaty

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with Sweden) based on data available in its own database for

people with a foreign address and where the distributor (companies,

banks, etc.) is obligated to submit such data to the Tax Agency.


A. Taxation of CIVs



We have identified two types of Swedish CIV’s: a Swedish invest-

ment fund and a Swedish investment company.

A Swedish investment fund is not a legal entity but is treated as a

separate taxable entity. An investment fund may either be accumu-

lating or distributing and can invest either exclusively in shares or in

bonds or in a mix of securities and other financial instruments. An

investment fund is liable to corporate tax at a special rate of 30 per-

cent (normal rate 26.3%). Capital gains on shares and similar finan-

cial instruments are not taxable whereas capital losses are not de-

ductible. As compensation, the investment fund has to report a

deemed taxable income of 1.5 percent of the fair market value at the

beginning of the fiscal year of such instruments. All other income,

such as dividends, interest, capital gains on sales of bonds and

similar interest bearing financial instruments is taxable as ordinary

income. Administration costs and interest paid (if any) are tax de-

ductible. Distributed dividend is also treated as a tax deductible

cost. Consequently, a distributing investment fund will normally not

pay income tax.

In 2010, new tax rules related to investment funds were proposed.

The reason for the proposal is that the UCITS directive will make it

easier for Swedish investment funds to migrate out of Sweden. To

prevent such migration (and make Sweden more attractive for in-

vestment funds), it is proposed that Swedish investment funds

should no longer be subject to Swedish taxation. To compensate for

the abolition of taxation, it is proposed that Swedish owners of Swe-

dish and foreign investment funds should be taxed on 0.4% of the

value of the fund shares at the beginning of the year. Swedish own-

ers will continue to pay tax on dividends and capital gains on in-

vestment fund shares.

It is also proposed that dividends from Swedish companies to for-

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10

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eign investment funds within the EEA should be exempt from Swe-

dish withholding tax. The new rules are proposed to enter into force

on July 1, 2011.

A Swedish investment company is a legal entity and as such also a

separate taxable entity. A Swedish investment company is subject

to a tax system that in many respects is identical with the system for

taxation of investment companies, however instead of a special tax

rate of 30% the normal tax rate of 26.3% applies.



ments through CIVs?


Investment

fund

Company taxation at

special rate of 30%.

Special rules apply in

which received divi-

dends are taxed as ordi-

nary income and distri-

buted dividends are

treated as tax deductible

cost (leading to a neutral

tax position).

No WHT on dividends

distributed to residents.

30% WHT on dividends

to foreign investors

unless the rate is re-

duced under a tax trea-

ty.

Investment

company

Company taxation at

normal rate of 26.3%.

Special rules apply in

which received divi-

dends are taxed as ordi-

nary income and distri-

buted dividends are

treated as tax deductible

cost (leading to a neutral

tax position).

No WHT on dividends

distributed to residents.

30% WHT on dividends

to foreign investors

unless the rate is re-

duced under a tax trea-

ty.



nonresident?

No.


What is the overall domestic tax burden on divi- Ad 1) Individuals: flat rate of 30%

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gory?

Ad 2) Companies: flat rate of 26.3% or tax exempt

Ad 3) Life insurance companies: tax exempt, however 15%

pension yield tax leading to an effective tax rate of approx.

0,75%

Ad 4) Pension funds: tax exempt, however 15% pension

yield tax leading to an effective tax rate of approx. 0,4%

Ad 5) Investment fund: flat rate of 30% - distributed divi-

dends are tax deductible

Ad 6) Investment company: flat rate of 26.3% - distributed

dividends are tax deductible








visions.


Individuals Yes Yes

Non-financial com-

panies

Yes Yes

Life insurance com-

panies

Yes Yes


CIVs:

Investment fund

Investment compa-

ny

Yes

Yes

Yes

Yes

This question is hard to answer because of the

special Swedish tax rules applicable. Also it really

depends on how the comparison is made. There

are several Swedish cases pending in which in-

fringement is claimed. Because the Tax Agency is

of the opinion that an infringement is not at hand

in any of the cases, it will probably take several

years before the cases reach the Swedish Su-

preme Court and a judgment by this body is pro-

vided.

In general please note that Sweden does not levy

withholding tax on dividend distributions by resi-

dent companies to resident investors.


How is juridical double taxation caused by WHT Ordinary credit.

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12

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The foreign tax credit that is granted pursuant to a tax trea-

ty generally follows the "per item" principle. The domestic

foreign tax credit provisions, however, prescribe an "over-

all" limitation. If this overall limitation is more favorable in a

given case, this method may also be applied to income

derived from a treaty country.




See appendix 2.




Net income basis.







Foreign-source net income is net income earned after de-

duction of allowable expenses, in accordance with the pro-

visions of Swedish tax law, but without deduction of credit-

able foreign tax.

In case of the ordinary credit method, may


Excess credit can be carried forward for 5 years.






Please explain.



No.









No.

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13

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No. However, the CIV may credit foreign withholding tax

against its income tax liability. WHT may be reduced or

eliminated under a double tax treaty.





sions.

See appendix 3.









See above II.G.

Yes, dividends from Swedish and foreign sources are sub-

ject to the same tax treatment. Swedish tax law does not

contain indirect foreign tax credit provisions.




N/A








Economic double taxation under § 4.1 of the Parent-

Subsidiary Directive is relieved under the method of ex-

emption (Swedish participation exemption). Under the par-

ticipation exemption, capital gains derived from the sale of

shares in resident or non-resident companies and received

dividends from those companies are not subject to tax (and

consequently losses are not deductible), provided that they

constitute a business-related holding.

The difference in the treatment of domestic and cross-

border situations is that shares in companies resident with-

in the EU (including shares held as inventory) are only con-

sidered business related, provided the holding represents

at least 10%. In domestic situations unquoted shares are

always deemed to be business-related holdings. In this

aspect the domestic treatment is obviously more favorable

than the foreign treatment. However, a foreign shareholding

of at least 10% (within the EU) will qualify for the exemp-

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tion, even when it considers shares held as inventory. In a

pure domestic situation the exemption would not be appli-

cable as shares held as inventory are explictely excluded

from the exemption regardless the shareholding percen-

tage.

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Appendix 1

Source state taxation: Outbound dividends Sweden


Recipient: Dom.

WHT


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa UK

Individual 30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

Non-financial

company

30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

Life insurance 30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

Pension fund 30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

CIV, with legal

personality

30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

CIV, without legal

personality

30 10 15 10 15 10 15 15 15 15 15 0 15 15 15 15 15 15 15 15 15 10 10 10 15 15 5

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Appendix 2

Residence state taxation: Inbound dividends Sweden


Recipient: Dom

Met

hod


Aus Bel Bul Cyp Cze Den Est Fi

n

Fra Ger Gre Hun Ire Ita La

t

Lit Lux Mal Net Pol Por Rom Slo Slo Spa UK

Individual OC OC OC OC OC OC OC OC OC OC OC MC OC OC MC OC OC OC OC OC OC OC OC OC OC MC OC

Non-financial

company

OC OC OC OC OC OC OC OC OC OC OC MC OC OC MC OC OC OC OC OC OC OC OC OC OC MC OC

Life insurance OC OC OC OC OC OC OC OC OC OC OC MC OC OC MC OC OC OC OC OC OC OC OC OC OC MC OC

Pension fund OC OC OC OC OC OC OC OC OC OC OC MC OC OC MC OC OC OC OC OC OC OC OC OC OC MC OC

CIV, with legal

personality


CIV, without legal

personality


Comments:

Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption IC = indirect credit for underlying corporate tax

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Appendix 3


Outbound dividends – source state – infringement on the TFEU by the domestic WHT

1. Taxation of dividends paid to foreign pension funds

The European Commission has formally requested Sweden to change the provisions in the

Dividend Withholding Tax Act, Income Tax Act and Act on Yield Tax on Pension Funds,

which provide for different methods of calculation of the tax due on Swedish-sourced divi-

dends, depending on whether the recipient is a resident or a non-resident pension fund.

Non-resident pension funds are subject to domestic withholding tax on Swedish sourced divi-

dends, in accordance with Article 4 of the Dividend Withholding Tax Act. The withholding

tax rate amounts to 30%, although it may be reduced to 15% pursuant to Swedish double tax

treaties.

Resident pension funds are exempt from tax on dividends as well as from corporation tax, in

accordance with the Law on Taxation of Income (1999:1229). However, the Act on Yield Tax

on Pension Funds (1990:661) imposes a special tax on resident pension funds (and life insur-

ance funds). The taxable base is not based on actual profits but on a notional calculation of the

assets the funds manage for the insured. In calculating the tax, a standardized method is used

(capital basis multiplied by the average governmental lending rate during the calendar year

immediately preceding the taxation year). The yield arrived at is taxed at 15% for pension

funds, leading to an effective tax rate of approx. 0.4% (for this example we have calculated

with a government loan interest rate of 2.76% (2010)).

The above mentioned provisions of Swedish tax law appears to be contrary to Article 63

TFEU and the corresponding provisions of the EEA Agreement.

The Commission's case reference number is 2006/4107.

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2. Dividends paid to foreign investment funds

There is a difference in the taxation of dividends paid to Swedish investment funds and for-

eign investment funds. Dividends paid to foreign investment funds are being taxed in accor-

dance with the Dividend Withholding Tax Act in which no deduction of tax is provided for

(besides the domestic participation exemption). Swedish investment funds on the other hand

have the possibility to deduct the received dividends from their taxable income if the divi-

dends are re-distributed to their shareholders.

The Swedish court has asked the European Court of Justice if Swedish tax law in this respect

should be considered to infringe upon EU law.

Inbound dividends – residence state – infringement on the TFEU by the domestic relief for


1. Swedish participation exemption

Economic double taxation can be relieved under the Swedish participation exemption. Capital

gains derived from the sale of shares in resident or non-resident companies and received divi-

dends from those companies are not subject to tax under this exemption, provided that they

constitute a business-related holding. The difference in the treatment of domestic and cross-

border situations is that shares in companies resident within the EU (including shares held as

inventory) are only considered business related, provided the holding represents at least 10%.

In domestic situations unquoted shares are always deemed to be business-related holdings. In

this aspect the domestic treatment is more favourable than the foreign treatment.

However, a foreign shareholding of at least 10% (within the EU) will qualify for the exemp-

tion, even when it considers shares held as inventory. In a pure domestic situation the exemp-

tion would not be applicable as shares held as inventory are explicitly excluded from the ex-

emption regardless the shareholding percentage.

Deloitte




Country: United Kingdom




















es? Please explain

N/A – There is no WHT on outbound dividends from the UK.





Please explain.





2010).

N/A




N/A

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2

2







please explain.

N/A








Individuals 0% 0%



Pension funds 0% 0%

CIVs:

1.

0% 0%






N/A


net income basis?

N/A














N/A





N/A

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3

3






ties)?








N/A











N/A




N/A





ries?

N/A




N/A





N/A

Is a nonresident CIV, which disqualifies N/A

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4

4





















N/A



N/A






N/A





N/A






N/A



N/A

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5

5


distribution, etc.

F. Refund procedure



N/A




N/A




tions?

N/A



N/A



claims?

N/A




tation?





N/A






N/A





N/A


a refund?

N/A




N/A

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6

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viders?





N/A



N/A







N/A






N/A





N/A



spontaneously?

N/A


A. Taxation of CIVs



Authorized/Unauthorized Unit Trust (AUT/UUT) - Separate

Open-Ended Investment Company (OEIC) - Separate

Approved/Unapproved Investment Trust (AIT/UIT) - Separate



ments through CIVs?


AUT/UUT Generally, dividend

income is exempt

under the ‘Foreign

Dividend Exemption’

(CTA 2009 s.931) as

long as it is included

within the list of exempt

On the basis the CIV

is not invested great-

er than 60% in quali-

fying investments i.e.

debt instruments, any

dividend Income is

taxable on the inves-

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distributions as set out

in appendix 4 (CTA

2009 s.931B-s.931H).

tor as dividend in-

come.

OEIC Generally, dividend

income is exempt

under the ‘Foreign

Dividend Exemption’

(CTA 2009 s.931) as

long as it is included

within the list of exempt

distributions as set out

in appendix 4 (CTA

2009 s.931B-s.931H).






dividend Income is


tor as dividend in-

come.

AIT/UIT Dividend income is

exempt under CTA

2009 s.931A as long as

it is included within the

list of exempt distribu-

tions found in CTA

2009 s.931B-s.931Q.






dividend Income is


tor as dividend in-

come.

In the case where

some of the dividend

to investors is

classed as interest

within the AIT/UIT,

there is an ‘optional

interest streaming’

method that can be

applied whereby the

interest income is not

taxed within the CIV.

Therefore, the inves-

tor remains tax neu-

tral.

Does the taxation of CIVs depend on No

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8

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nonresident?




gory?

Individual:

There is a dividend tax credit available to individuals in

receipt of dividends from UK resident companies and

from foreign companies (provided it is not an offshore

fund per the definition in The Offshore Funds Regula-

tions 2009) in which their shareholding is no more than

10%.

The dividend tax credit is equal to one ninth of the

amount of the dividend. As tax is charged on the gross

dividend received, including the tax credit, the effective

rate of tax is reduced, as shown in brackets below.

Lower rate tax payers – 10% (0%)

Higher rate tax payers – 32.5% (25%)

Additional rate for people who earn more than£150k –

42.5% (36.11%)

Companies:

Dividend income is exempt as mentioned above.

Life Insurance companies:

Life Business – Dividend income is exempt

Gross roll-up Business – Dividend income is taxed at a

maximum effective rate of 20%. There are credits avail-

able for any consequential increase in policy holder liabil-

ities.

Non Life Business – Dividend income is exempt

Share Holder fund – Dividend income is exempt, as long

as it is classed as an Investment Company.

Pension Funds:

Any dividend income is not taxable on the pension fund.

CIVs:

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Dividend income is exempt as mentioned above








visions.


Individuals Yes Yes

Non-financial com-

panies

Yes Yes

Life insurance com-

panies

Yes Yes


CIVs:

AUT/UUT

OEIC

AIT/UIT

Yes

Yes

Yes

Yes

Yes

Yes






Corporate

The dividend is likely to be exempt from UK tax in which

case, DTR cannot be claimed on WHT suffered (assum-

ing all treaty benefits have already been claimed).

Individual

Ordinary credit relief is available as well as the UK divi-

dend tax credit of 10% subject to a ceiling equal to liabili-

ty to UK Income tax in respect of the dividend.




Per country. However, per item if income from multiple

sources from the same country are subject to WHT




See appendix 2




Gross income basis





N/A

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No, any excess credit is lost.






Please explain.



If an investor invests via a CIV, they will not generally be

entitled to a foreign tax credit for WHT paid by the CIV.









If a UK investor invests via a non-UK CIV which has

suffered WHT on the underlying securities, they will not

generally be entitled to a foreign tax credit for WHT paid

by the CIV.

If a UK investor invests via a non-UK CIV which with-

holds tax on any dividend payments made to the inves-

tor, the investor can receive relief for this via an ordinary

credit.




Refunds can only be made by the paying company juris-

diction for reduced rates under a Double Tax Treaty (or

possibly by an EU member state under EU principles.)





sions.

N/A









Corporate

Yes, due to the previously mentioned dividend exemp-

tion, double taxation will not occur.

Individual

Yes, due to the availability of the UK dividend tax credit

on both UK and foreign dividends received by an individ-

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See above II.G. ual.




No








N/A due to the existence of the Dividend Exemption on

both UK and foreign dividend income.

Deloitte

Appendix 2


United Kingdom


Recipient: Dom.

Metho

d


Aus Bel Bul Cyp Cze Den Est Fin Fra Ger Gre Hu

n

Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe

Individual OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC OC

Non-financial

company

Life insurance

Pension fund

CIV, with legal

personality

CIV, without legal

personality

Comments:

Where a Double Tax Agreement (DTA) exists between the UK and the other country the amount of foreign tax available for the relief is restricted to the minimum foreign tax payable under the terms of the agreement.


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Appendix 3



It is not thought there are any open infringement proceedings relating to the UK concerning outbound divi-dends.


N/A


N/A

3. WHT rates

Litigation is taking place on one point concerning outbound dividends. This point is that when a dividend is

paid to a non-resident EU/ EEA company by UK resident company, then certain tax credit should be payable

to the recipient. The taxpayer has so far lost this case. However one further appeal may be allowed.


N/A

II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for juridical

double taxation

Litigation is taking place in the UK concerning various historic aspects of UK inbound dividend taxation.

However the legislation changed significantly from 1 July 2009 and the litigation is not relevant to the new

legislation. There is no litigation concerning policy inconsistency with the EU Treaties that we are aware of

in relation to the new legislation.


N/A


N/A


N/A

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Appendix 4

Part 9A of CTA 2009

This Part of the Schedule includes only one paragraph, which introduces a new Part 9A to CTA. Part 9A replaces theexisting rules that tax foreign dividends and that give exemption for UK distributions. Part 9A is divided into four Chap-ters. The first Chapter establishes a charge to corporation tax on income distributions received from UK or foreigncompanies. Chapter 2 sets out the conditions for a distribution received by a small company to be exempt from corpo-ration tax and Chapter 3 does the same for large or medium–sized companies. Chapter 4 includes interpretation pro-visions.

Chapter 1 of Part 9A of CTA

Section 931A establishes that in principle UK and foreign distributions are subject to corporation tax on income, unlessthey are exempt according to the rules given later in the Part.

Subsection (2) limits the scope of the Part by excluding distributions of a capital nature. Capital distributions will con-tinue to be taxed or exempt according to the rules applying to chargeable gains and are unaffected by this legislation.


Chapter 2 gives the conditions for a distribution received by a small company to be exempt. The definition of a smallcompany for this purpose is given in Chapter 4 of Part 9A (section 931S).

Section 931B makes a distribution received by a small company exempt subject to the following conditions:

The company paying the distribution must be resident of the UK or a “qualifying territory”, which is a termdefined in section 931C. The company must not be resident in more than one jurisdiction;

The distribution must not be an amount of interest that is treated as a distribution in accordance with section209(2)(d) or (e) of ICTA. In practice this will mainly refer to interest paid at more than a commercial rate(section 209(2)(d)). Paragraph 14 of the Schedule ensures that wherever possible excessive rates of interestwill be dealt with by transfer pricing rules;

The distribution must not be a dividend that qualifies for a foreign tax deduction; and

The distribution must not be made as part of a tax advantage scheme, as defined in section 931U.

Section 931C(1) defines a qualifying territory for the purpose of section 931B as a territory with which the UK has adouble taxation treaty that includes a non-discrimination provision in a standard form.

‘Non-discrimination provision’ is defined in subsections (4) and (5) in terms that follow Articles 24 and 3 of the OECDModel Convention on Income and on Capital. Subsection (3) gives conditions about the meaning of the term “resi-dent” for the purpose of section 931B in terms that follow Article 4(1) of the Model Convention, which defines what ismeant by “resident of a Contracting State”.

Subsection (2) allows HM Treasury by regulations to provide that a territory is a qualifying territory even if it does notsatisfy subsection (1), or that it is not a qualifying territory even if it does satisfy that subsection.

Subsection (6) provides amongst other things that the regulations may make different provision for different types ofcompany. Any such regulations will be subject to affirmative resolution procedure (see paragraph 28 of the Schedule).

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Chapter 3 gives the conditions for a distribution received by a large or medium-sized company to be exempt.

Section 931D makes a distribution exempt from corporation tax provided:

it falls into one or more of the exempt classes; and

it is not one of two types of distribution that do not qualify for exemption.

The first non-qualifying type relates to interest that is treated as a distribution, and to certain other distributions inrespect of securities. The second non-qualifying type refers to distributions that qualify for a tax deduction in a foreignjurisdiction. These exclusions are identical to the second and third conditions that apply to small companies in section931B.

Exempt classes

There are five exempt classes set out in sections 931E to 931I. Distributions will frequently fall into more than one ofthese classes, but it is sufficient to fall into any one of them for a distribution to be exempt, provided the anti-avoidance rules in sections 931J to 931Q do not apply.

Section 931E provides exemption for distributions paid to a parent company that controls the company making thedistribution. Control for this purpose is defined by reference to the controlled foreign company (CFC) control rules,including the extension to joint ventures that have a 40 per cent interest combined with another 40 per cent to 55 percent interest. The definition of control for CFC purposes was extended in Finance Act 2008 by reference to entitlementto the majority of income or capital rights. There is an anti-avoidance rule specific to this section in section 931J.

Section 931F provides exemption for all distributions paid in respect of non-redeemable ordinary shares. The terms“ordinary share” and “redeemable” are defined in section 931U. A share is an ordinary share provided it carries nopreferential rights to income or capital. There is an anti-avoidance rule specific to this section in section 931K

Section 931G provides exemption for distributions in respect of portfolio holdings. Portfolio holdings are holdings ofless than 10 per cent of shares of the same class as those in respect of which the relevant distribution is made. The 10per cent limit must be met by reference to share capital, income rights and capital rights. Shares are not of the sameclass if different proportions of their nominal share capital are paid up (for this purpose any amount paid in respect ofshare premium is disregarded). There is an anti-avoidance rule specific to this section in section 931L.

Section 931H provides exemption for any dividends paid out of profits that are not derived from transactions thatachieve (and that have as a main purpose to achieve) a UK tax advantage of more than a negligible amount. Profits notderived from such transactions are referred to as “relevant profits”.

If a company has any profits that are not relevant profits, which are therefore derived from avoidance transactions,this exempt class will not be available and will remain unavailable until all those profits have been paid out as taxabledividends. However, once those “avoidance” profits have been fully paid out in taxable form, this exempt class willbecome available for any subsequent dividends paid from relevant profits, including the remaining part of a dividendthat is paid partly but not wholly out of profits other than relevant profits.

There is a transitional rule in Part 3 of this Schedule that treats all profits earned from transactions that took placemore than 12 months before the commencement date for the Schedule (that is, before 1 July 2008) as relevant prof-its. Any dividend paid out of such profits will therefore qualify for this exempt class.

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If a dividend is paid partly out of relevant profits and partly out of other profits, it is treated as two separate dividendsfor the purposes of this Part and also for the purposes of Part 18 of ICTA, which allows double taxation relief to begiven in respect of a non-exempt part of a dividend.

Paragraph 8 of the Schedule amends section 799 ICTA to ensure that section 931H and the double taxation reliefrules in Part 18 ICTA are consistent with one another in the way that profits are specified in relation to a taxable divi-dend.

Section 931I provides exemption for distributions paid in respect of shares that would be taxed as loan relationshipsexcept that they are not held for an unallowable purpose and are consequently exempt from taxation under loanrelationship rules. The loan relationship exemption would not in itself give exemption from taxation under Part 9A,which is instead provided by this section.

Section 931I refers to section 521C of CTA, which is itself being introduced by Schedule 24 of this Act (section 48). Theterm “unallowable purpose” will be defined by section 521E.

Exempt classes: anti-avoidance

Sections 931J to 931Q contain anti-avoidance rules. Sections 931J to 931L contain rules that can prevent distributionsfrom falling within specific exempt classes. Where sections 931M to 931Q apply they prevent distributions from beingexempt at all.

The terms “scheme” and “tax advantage scheme” that are used in these sections are defined in section 931V. A taxadvantage scheme is a scheme that has as its main purpose, or one of its main purposes, to obtain a tax advantage ofmore than a negligible amount.

Section 931J is an anti-avoidance rule that applies to dividends that fall into the section 931E exempt class (distribu-tions from controlled companies). Section 931E mirrors the CFC control rules and so in general the protection affordedby the CFC rules minimises the risk of avoidance schemes that use distributions exempt under this class. Section 931Jblocks avoidance schemes that seek to obtain exemption despite the fact that the CFC control rules did not apply atthe time when the profits included in the dividend were earned.

Section 931J applies only where there is a scheme or arrangement that has as a main purpose to obtain exemptionunder section 931E. For example, it would apply to the following type of scheme:

a group company that is outside the scope of the CFC rules receives income that is diverted from the UK un-der an avoidance scheme or arrangement;

the company is then brought under the control of a UK member of the group in order to allow subsequentdividends to fall within the section 931E exempt class; and

a dividend is paid out of the company’s distributable profits, which include those diverted from the UK duringthe pre–control period.

Where it applies, this section prevents a distribution from being exempt by virtue of the controlled companies exemptclass. It will not prevent a distribution from being exempt by virtue of any other class.

If a dividend is paid as part of a scheme that falls within this section and the company has any pre-control profits, thisanti-avoidance rule will apply. However, once those pre-control profits have been fully paid out in the form of taxabledividends, the anti-avoidance rule will cease to apply to any subsequent dividend (or part dividend).

As with section 931H, if the section applies to part but not all of a dividend, it is treated for the purposes of both Part9A and Part 18 of ICTA as if it were two dividends.

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There is a transitional rule in Part 3 of this Schedule that prevents any profits earned more than 12 months before thecommencement date for the Schedule (that is, before 1 July 2008) from being treated as pre-control profits. Any divi-dend paid out of such profits will therefore not fall within this anti-avoidance rule.

Section 931K is an anti-avoidance rule that applies to dividends that fall within the section 931F exempt class (distribu-tions in respect of non-redeemable ordinary shares). It applies only where there is a scheme or arrangement that hasas a main purpose to obtain exemption under section 931F.

The anti-avoidance rule in this section will apply if rights are obtained under an avoidance scheme that are equivalentto the rights of either a preferential shareholder or a holder of a redeemable share.

Where it applies, this section prevents a distribution from being exempt by virtue of the non-redeemable ordinaryshares exempt class. It will not prevent a distribution from being exempt by virtue of any other class.

Section 931L is an anti-avoidance rule that applies to dividends that fall within the section 931G exempt class (distri-butions in respect of portfolio holdings). It applies only where there is a scheme or arrangement that has as a mainpurpose to obtain exemption under section 931G.

The anti-avoidance rule in this section will apply if a shareholding that would be too large to qualify for the portfolioholdings exempt class is split between a number of connected companies in order that each company’s holding fallsbelow the 10 per cent threshold given in section 931G.

Where it applies, this section prevents a distribution from being exempt by virtue of the portfolio holdings exemptclass. It will not prevent a distribution from being exempt by virtue of any other class.

Section 931M is an anti-avoidance rule that applies to distributions that arise from a tax advantage scheme (see sec-tion 931V) and that are part of an arrangement that yields a return economically equivalent to interest.

Subsection (1) excludes from the anti-avoidance rule any distribution that is exempt by reason of section 931E (distri-butions from controlled companies). Subsection (6) restricts the section to cases where there is a connection betweenthe recipient and payer.

Subsection (7) defines the meaning of “connection” in subsection (6) by reference to an amended loan relationshipdefinition of “connected company” in section 466. The reason for using the loan relationship definition is to ensurethat section 931M has sufficient scope to cover all those cases where loan relationships legislation is disapplied byreason of a connected person rule, but there is a risk that the CFC rules may not apply because of an absence of con-trol of the payer by the recipient.

The definition of “economically equivalent to interest” in this section is aligned with that given in section 486B of CTA,which is being introduced by Schedule 24 of this Act (section 48).

Section 931N is an anti-avoidance rule that applies to tax advantage schemes (see section 931V) that include a deduc-tion given under any foreign tax law in respect of an amount calculated by reference to a distribution.

There are rules in sections 931B(c) and 931D(c) that deny exemption for any distribution that itself qualifies for a for-eign tax deduction. This section prevents those rules being sidestepped through avoidance schemes that arrange fortax deductions to be given indirectly.

Section 931O is an anti-avoidance rule that applies to tax advantage schemes (see section 931V) involving paymentsfor distributions. The language of this section is similar to that used in section 125 of ICTA, which was amended in2005 in response to avoidance schemes involving annual payments. This section introduces a rule that will deny ex-emption in any case where the recipient or a person connected to the recipient makes a payment or gives up incomein return for a distribution.

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Section 931P is an anti-avoidance rule that guards against the risk that the terms on which goods or services are pro-vided might be varied in a way that reduces taxable profits in return for a right or expectation that a distribution willbe paid to compensate for the lost profits. It applies where there is a tax advantage scheme (see section 931V) thatinvolves the payment of a distribution, but does not apply in any case where the transfer pricing rules in Schedule28AA to ICTA cancel the tax advantage arising from the variation in terms.

Section 931Q is an anti-avoidance rule that denies exemption to distributions that have been artificially diverted froma company (referred to as “C” in the section) for which the distribution would have been a trade receipt. Part 9A doesnot apply to distributions that are trade receipts (although there is a special rule for insurance companies in paragraph22 of this Schedule that has an equivalent effect), which are instead taxable as part of trade profits. This might createan incentive for a trading company to divert distributions that are trade receipts to a different company in order toobtain exemption under Part 9A.

50.The section applies only where there is a scheme or arrangement that has as a main purpose to obtain Part 9Aexemption and where it is reasonable to assume that the distribution would have represented a trade receipt of C.Subsections (3) and (4) require that in considering whether it is reasonable to make this assumption, it must be as-sumed that C was a party to any transactions giving rise to the distribution.

Chapter 4 of Part 9A CTA 2009

Chapter 4 interprets terms used in Part 9A and also establishes how Part 9A interacts with certain other parts of CTA.

Section 931R allows a company to make an election that a particular distribution that would otherwise be an exemptdistribution shall instead be taxable. Two reasons why a company might wish to make such an election are as follows:

dividends can only be taken into account for the purposes of the CFC acceptable distribution policy (ADP) ex-emption if they are subject to tax; and

it is possible that exemption could lead to an increased rate of withholding tax.

A company may elect for one or more dividends paid in an accounting period not to be exempt. If part but not all of adividend is an ADP dividend, the company may elect for only the ADP part to be taxable, while retaining exemption forthe other part. Any such election must be made within two years of the end of the accounting period in which thedistribution is received.

Section 931S gives the definition of “small company”, thereby establishing the scope of Chapter 2. The definition fol-lows the 2003 European Commission recommendation except that certain financial companies listed in subsection (2)are not treated as small companies.

Section 931T defines the terms “payer” and “recipient” in relation to a distribution. These terms are used throughoutPart 9A. It also defines the term “relevant person”, which is used in several of the anti-avoidance sections as a meansof referring to any company connected with the recipient of a distribution.

Section 931U defines “ordinary share” and “redeemable” for the purposes of sections 931F and 931K. An ordinaryshare carries no preferential rights and a share is redeemable if as a result of its terms of issue or any collateral ar-rangements either the holder or the issuer is entitled to redeem the share.

Section 931V defines “scheme” and “tax advantage scheme”. The term “scheme” is broadly defined. A scheme is a taxadvantage scheme if one of its main purposes is to obtain a tax advantage, as that term is defined in ICTA.

Section 931W gives priority to other Parts of CTA that in some cases include distributions under alternative heads ofcharge (trade profits, property income and life insurance taxation). Hence Part 9A will apply only where distributionsare not taxed under these alternative heads of charge

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