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29 July 2007

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EU Commission refers Greece to ECJ concerning discriminatory taxation of dividends

The European Commission announced, on 5 July 2007, that it had decided to refer Greece to the European Court of Justice (ECJ) due to its rules on the taxation of dividends, which, according to the Commission, are discriminatory against dividends paid by companies established in other EU Member States or EEA States (case reference no. 2006/4044).

According to Greek law, dividends paid by Greek companies to resident individuals are exempt from income tax while dividends paid by foreign companies (inbound dividends) are taxed.

The Commission, referring to the ECJ's decision in the Verkooijen case (Case C-35/98) and to its 2003 Communication "Dividend taxation of individuals in the internal market", maintains that a different treatment of dividends according to their origin constitutes a restriction of the free movement of capital (Art. 56 of the EC Treaty), or, in cases where the individual shareholder has control over the foreign company, the freedom of establishment (Art. 43 of the EC Treaty).

As a defence, Greece points out that in the case of inbound dividends the recipient is entitled to an ordinary tax credit for any withholding tax effectively paid abroad. The Commission considers that the Greek legislation is still discriminatory due to the progressivity of the individual income taxation, which may result in a higher taxation of inbound dividends.

The Commission sent a reasoned opinion to Greece concerning the above rules on 18 October 2006 . Since Greece has not taken any action, the Commission decided to refer the matter to the ECJ.

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