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Dividends Distributed Cross Borders

CFE response to the public consultation paper on taxation problems
that arise when dividends are distributed across borders to portfolio
and individual investors and possible solutions

II. Problems encountered
1) Which problems, if any, have you encountered due to the EU cross-border levying and
refunding of withholding taxes on dividends?
X Double taxation
Discrimination (please provide details)
Other (please specify)
2) What was the source of the problem?
Denial of credit for foreign withholding tax
Higher taxation of foreign dividends than in purely domestic situations
X Difficulties in obtaining a refund of foreign withholding taxes – the procedures
were (please specify): too complex, costly, time-consuming
Other (please specify)
National procedural rules, e.g. on time limits and on the competent authorities for
refund claims often render an effective refund procedure impossible, e.g. where
refunds have to be claimed from a large number of local tax authorities. This may
particularly be the case if investments are held via collective investment vehicles.
We refer to our explanations in the attached “CFE Opinion Statement on the right to
an effective recovery of taxes levied in violation of EU law”, in particular to paras 14 –
28.
III. Additional costs
1) Have you suffered any additional costs due to the cross-border investment in
dividends?
X Yes No
The costs were suffered by clients of tax advisers in a number of cases involving
several EU member states.
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2) What is the amount of these additional costs and what were they due to?
They were due to difficulties in obtaining a refund of foreign withholding taxes, see
attached “CFE Opinion Statement on the right to an effective recovery of taxes levied
in violation of EU law”, in particular to paras 14 – 28.
Also some countries, for instance Belgium and Italy, do not give credit for withholding
taxes levied on dividends from overseas jurisdictions.
3) Have these additional costs dissuaded you from investing cross-border?
We cannot give an answer for all European countries where CFE has member
organisations. However, we consider that double taxation and/or burdensome refund
procedures are likely to discourage cross-border investments.
4) Which was the Member State of source of the dividend (please indicate for each
separate case in which you have suffered additional costs)?
A few Member States were involved.
5) Which is/ was your Member State of residence?
A few Member States were involved.
IV. Possible solutions
1) Which (combination) of the above outlined solutions do you consider most appropriate
to tackle any taxation problems that arise when dividends are paid across border to
individual investors or to companies that are portfolio investors? Why do you prefer that
option?
The ideal solution from the perspective of individual and portfolio investors to tackle
taxation problems on dividends is the one under Option 1 (elimination of withholding
tax on dividends paid to individual and portfolio investors).
It presents a number of advantages (such as, elimination of double taxation and
elimination of discrimination between domestic and outbound dividends).
Another important point is that the first option solves the cash flow disadvantage of
taxpayers, as the Commission has rightly identified in the consultation paper. This
issue of economic importance for businesses has been neglected by the recent ECJ case
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law (see attached “CFE Opinion Statement on case C-540/07 Commission v. Italy”,
para 22).
Lastly, the solution proposed under Option 1 is consistent with the tax treatment of
dividends under the parent-subsidiary directive.
Of course, in implementing the solution under Option 1 it is important to adopt any
measures to reduce the impact of the outlined disadvantages (for example, an
automatic exchange of information system should considerably reduce any foreseeable
risk of tax evasion).
If Option 1 should prove to be politically unachievable, the second best solution would
be Option 4 which would reduce the risk of tax evasion by investors as the reduced rate
of withholding tax would only be available with information exchange.
2) Would you prefer a completely different solution and if so what solution do you
suggest?
At this stage, Option 1 seems to be the best solution to the problem.
3) What, if anything, else do you think could be done at EU level to overcome any
difficulties that exist in the area of cross-border withholding taxes on dividends paid to
individual and portfolio investors?
At this stage, Option 1 seems to be the best solution to the problem.

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