Dr Mario Tenore Vienna University of Economics and Business Brussels , 28 September 2009

Institute for Austrian and International Tax Law www.wu.ac.at/taxlaw 1

Dr Mario TenoreVienna University of Economics and

Business

Brussels, 28 September 2009

La tassazione dei dividendi transnazionale in Europa

Taxation of cross border dividends in Europe


The content of my thesis

Taxation of cross-border dividends under the general tax law principles

Taxation of cross-border dividends under international tax law principles

Taxation of cross-border and European law– Primary Law and secondary Law

Taxation cross-border dividends from an Italian perspective.


Taxation of cross-border dividends under OECD MC

Why do we go into art. 10 OECD MC?– Role of art. 7(7) and 10(4) OECD MC

Art. 10 OECD MC – Shared allocation of taxing rights between the

Contracting States– General Issues: consistency within the Model and

particularly with art. 13.5 OECD MC – Technical Issues: definition of dividends



Art. 10.1: bilateral reach of the provision

Art. 10.2: (il)limited taxation by S State

Art. 10.3: definition 3 parts (interrelationship)

Art. 10.4: PE proviso

Art. 10.5: denial of extraterritorial taxation



The reading of paragraphs 1 and 3 suggests that three elements are required: – a cross-border flows of dividends (para. 1);– the payment of such dividends by a company which is

resident of a contracting State (para 1);– the income to be qualified as “dividends” according to

the definition provided in article 10(3) OECD MC– N.B: If either of these elements is not met, Art. 7

(Business Profits) will apply



Art. 10(3): Definition of dividendsThe term “dividends” as used in this Article means - income from shares, “jouissance” shares or “jouissance”

rights, mining shares, founders’ shares - - - or other rights, not being debt-claims, participating in

profits, - as well as income from other corporate rights which is

subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.



– Entrepreneurial risk (commentary on art. 10 OECD MC)– No holding requirement in the definition

– Holding requirement in art. 10.2(a): aimed at the application of the reduced rate (5%)

– Residual part of the dividend definition: “….income from other corporate rights which is subjected to the same taxation treatment as income from shares”– Usufruct right? – Securities loan agreement (manufactured dividends)?

– Comparison with the income covered by the Parent Subsidiary Directive


OECD MC vs. Parent Subsidiary Directive

– Comparison with the income covered by the Parent Subsidiary Directive

– Les Vergers du Vieux Tauves SA (Case C-48/07), 22 December 2008: article 4(1) of the Directive does not apply in the case of a usufruct agreement as the position of the parent in respect of its subsidiary “is not such as to endow it with the status of the shareholder, as that position results solely from the right of usufruct that has been transferred to it by the owner of the shares in the capital of the subsidiary..:”.


OECD MC vs. Parent Subsidiary Directive

Indispensable status of shareholder: holding in the capital of the subsidiary

– Reduce the scope of avoidance schemes based on usufruct agreements

– Manufactured dividends?– Consistency with the aim of eliminating economic

double taxation?– (re) qualified income? E.g. thin cap rules– Impact of Primary Law: no discriminatory situations

are allowed


Taxation of cross-border dividends the Parent Subsidiary Directive

Art. 2: subject to tax requirement?– Subjective tax requirement– with no possibility of being exempt: domestic law or

Treaty law exemption?– Treaty law exemption should not be taken into account:

treaty law exemption is “objective”– Treaty law exemption looks at the income from a specific

source (bilateral scope of the tax treaties)– Reference to treaty law is not made with respect in 1.2 c)


Taxation of cross-border dividends the Parent Subsidiary Directive

Dual resident situations involving third countries– Dual resident parent company– Dual resident subsidiary company

If the EU country is the loser country, both scenarios are excluded from the Parent Subsidiary regime– However……

– EU Parent company with a PE in a third country (PE income exempt)

– EU Subsidary company with a PE in a third country (PE income exempt)


Taxation of dividends and in the case law European Court of Justice

Taxed Exempt

Taxed Comparable(Fokus B.)

Not Comparable(ACT GLO)

Exempt Comparable(Denkavit)

OK

Resident Shareholders

Non-Resident Shareholders


Pan-European approach vs. unilateral approach

• The Court used the pan-european approach in some cases (Manninen, Denkavit, Amurta) but rejected it in many others (e.g. Kerckhaert, FII GLO)

• Why is that?• Source State cases• Cases where there is a breach of EU law (e.g. in

Kerckhaert and FII the ECJ found no breach)



Three types pf pan-european approach• based on the same treatment (first type: M&S)• based on a substantially similar treatment

(second type: Manninen)• based on the application of a DTC or on the

interaction between domestic law (third type: Denkavit and Amurta)



First type pan-european approach:• M&S: State of residence perspective

• Interaction of domestic law: same rules which eliminate the discrimination

• Pan-european approach used at the level of justifications



Second type pan-european approach:• Manninen: State of residence perspective

• Pan-european approach used at the level of comparability

• Interaction of domestic law: in the other State the discrimination is (partially eliminated)



Third type pan-european approach (I):• Denkavit: State of Source

• used at the level of comparability• based on the application of a DTC• is a DTC always relevant to ascertain the

existence of a breach?• Bouanich (para. 46)



Third type of pan-european approach (II):• Amurta: State of source

• Similar to Denkavit but based on the interaction between national law

• Both AG and the Court denied the application of the second type pan-european approach (debatable!)



Third type of pan-european approach (III):• Amurta: State of source perspective

• Difference with DTC law: usually DIE eliminated by the State of Source



Procedural obstacles in the application of the third type pan-european approach:

• The burden of proof is on the taxpayer• What if the credit is not effectively granted

• Partial credit? Absence of tax capacity (e.g. losses in the State of residence)

• Cash flow disadvantages?


Grazie, Thanks, Merci…..

Dr. Mario Tenore, LL.MVienna University of Economics and Business

[email protected]

Documents

Dr Mario Tenore Vienna University of Economics and Business Brussels , 28 September 2009