La tassazione dei dividendi transnazionale
in Europa
Taxation of cross border dividends in
Europe
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
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.
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
2
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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
3
Taxation of cross-border dividends under
OECD MC
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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
4
Taxation of cross-border dividends under
OECD MC
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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
5
Taxation of cross-border dividends under
OECD MC
Art. 10(3): Definition of dividends
The 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.
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
6
Taxation of cross-border dividends under
OECD MC
– 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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
7
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..:”.
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
8
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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
9
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)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
10
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)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
11
Taxation of dividends and in the case law
European Court of Justice
Non-Resident
Shareholders
Resident
Shareholders
Taxed
Exempt
Taxed
Comparable
(Fokus B.)
Not
Comparable
(ACT GLO)
Exempt
Comparable
(Denkavit)
OK
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
12
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)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
13
Pan-European approach vs.
unilateral approach
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)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
14
Pan-European approach vs.
unilateral approach
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
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
15
Pan-European approach vs.
unilateral approach
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)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
16
Pan-European approach vs.
unilateral approach
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)
Institute for Austrian and International Tax Law
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17
Pan-European approach vs.
unilateral approach
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!)
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
18
Pan-European approach vs.
unilateral approach
Third type of pan-european approach (III):
• Amurta: State of source perspective
• Difference with DTC law: usually DIE eliminated by
the State of Source
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
19
Pan-European approach vs.
unilateral approach
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?
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
20
Grazie, Thanks, Merci…..
Dr. Mario Tenore, LL.M
Vienna University of Economics and Business
[email protected]
Institute for Austrian and International Tax Law

www.wu.ac.at/taxlaw
21