In Guy Riskin and Geneviève Timmermans v État Belge (Case C-176/15, June 30 2016), the CJEU concluded that the freedom of capital does not preclude a Member State from treating dividends received from another Member State less favourably than the treatment of dividends received from a third country, under the respective tax treaties.
The dispute arose out of the Belgian Tax Authority’s determination that in terms of the Belgium-Poland tax treaty, the receipt of dividends by Belgian residents derived from shares held in a company established in Poland were taxable in Belgium, even though a withholding tax was payable at source.
Depending on the applicable tax treaty, Belgium may allow taxpayers to unconditionally credit the withholding tax levied at source by a third state from the Belgian tax payable on foreign dividends. However, the Belgium-Poland tax treaty provided that the granting of a credit against the tax payable in Belgium is only allowed subject to the application of additional provisions of Belgian tax law. In terms of domestic law, Mr. Riskin and Ms. Timmermans who received dividends from Poland could not benefit from a tax credit as their interest in the Polish company was not held in the context of a business activity.
The plaintiffs questioned the allegedly unjust and unreasonable favourable fiscal treatment to Third States over EU Member States.
- The CJEU acknowledged that it is undisputed that the situation of Belgian residents who receive dividends from Member States such as Poland, is less favourable than that of Belgian residents who receive dividends from a Third State with which Belgium has concluded a tax treaty providing for an unconditional right of set-off.
- This disadvantageous treatment may discourage investment in Member States to which conditions are attached, constituting a restriction on the free movement of capital.
- Nevertheless, it pointed out that under Article 65(1)(a) TFEU, Member States are accorded with discretion to apply the relevant provisions of their tax law; permitting unequal treatment. According to the established case-law, unequal treatment is permissible only where the difference in treatment is applied to situations which are not objectively comparable, or where it is justified by overriding reasons in the public interest.
- The CJEU noted that a more favourable provision included in a Belgian tax treaty with a Third State is the result of the mutual relations and negotiations between the two jurisdictions. Moreover, such provision cannot be seen separately from the remaining treaty. The benefit of a provision can be granted only to Belgian residents falling within the scope of that treaty and therefore Belgium does not have to extend this benefit to dividends from other countries.
- The CJEU found that the restriction was justified since the situations in question were not objectively comparable to that of Belgian residents in receipt of dividends from a Third State with which Belgium has concluded Double Taxation Conventions providing for an unconditional right to a set-off. The difference of treatment did not constitute a restriction prohibited by EU law.