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Company taxation: European Commission pursues infringement proceedings against France and Greece

The European Commission has sent France a reasoned opinion (the second stage of formal infringement proceedings under Article 169 of the EC Treaty) for applying a discriminatory tax regime to the profits of French permanent establishments of companies from other Member States. The Commission has also decided to refer Greece to the Court of Justice for violating the capital duty Directive (69/335/EEC). The infringement concerns the rate of the capital duty charged on raising capital for the formation of a company or increasing it, and the practice in Greece of imposing a charge for the lawyers’ social fund, over and above capital duty, on the same operations.

France – discrimination against branches of non-French companies

The French “Code Général des Impôts” (General Tax Law) subjects the profits of permanent establishments of companies which have their headquarters in other Member States to a withholding tax of 25%. This withholding tax can, however, be reduced on the basis of a double taxation convention entered into between France and the other Member State. Some conventions provide for a reduction of this tax to zero, but others do not. The Commission considers such differential tax treatment cannot be objectively justified, and is incompatible with EC Treaty rules on freedom of establishment and on equal treatment for firms with their headquarters in any Member State (Articles 52 and 58).

Greece – levies on raising company capital

With a view to helping to create a tax environment favourable for investment, the capital duty Directive requires Member States to ensure that duty levied on capital raised for the formation of a company, or to increase a company’s capital, may be no higher than 1 %. The Directive also stipulates that besides capital duty, Member States may not impose any other taxes or levies on raising company capital which have an equivalent effect, whatever their denomination may be. The infringement case against Greece concerns not only the level of capital duty levy itself, which in some cases amounts to 1.3 %, but also additional levies in the form of contributions to the lawyers’ social fund. These contributions are levied on lawyers’ clients for a range of services, including the setting up a company or increasing its capital. For an increase in a company’s capital, the levy amounts to 0.5 % of the company’s capital. The Commission does not accept the argument of the Greek Government that the provisions in question are necessary to guarantee social protection for lawyers. The Commission considers that there is no justification for imposing a direct contribution on the lawyers’ clients rather than to provide for a system under which the lawyers would make a contribution themselves.

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