La tassazione d ei dividendi transnazionale in europa taxation of cross border dividends in europe
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Dr Mario Tenore Vienna University of Economics and Business Brussels , 28 September 2009 PowerPoint PPT Presentation


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La tassazione d ei dividendi transnazionale in Europa Taxation of cross border dividends in Europe. Dr Mario Tenore Vienna University of Economics and Business Brussels , 28 September 2009. The content of my thesis.

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Dr Mario Tenore Vienna University of Economics and Business Brussels , 28 September 2009

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La tassazione d ei dividendi transnazionale in europa taxation of cross border dividends in europe

La tassazione dei dividendi transnazionale in EuropaTaxationof cross borderdividends in Europe

Dr Mario Tenore

Vienna University of Economics and Business

Brussels, 28 September 2009


The content of my thesis

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.


Taxation of cross border dividends under oecd mc

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


Taxation of cross border dividends under oecd mc1

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


Taxation of cross border dividends under oecd mc2

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


Taxation of cross border dividends under oecd mc3

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.


Taxation of cross border dividends under oecd mc4

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


Oecd mc vs parent subsidiary directive

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 December2008: 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..:”.


Oecd mc vs parent subsidiary directive1

OECD MC vs. Parent Subsidiary Directive

Indispensable status ofshareholder: holding in the capital of the subsidiary

  • Reduce the scope ofavoidanceschemesbased on usufructagreements

    • Manufactureddividends?

  • Consistencywith the aimofeliminatingeconomicdoubletaxation?

  • (re) qualifiedincome? E.g. thincaprules

  • Impact ofPrimaryLaw: no discriminatorysituations are allowed


Taxation of cross border dividends the parent subsidiary directive

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)


Taxation of cross border dividends the parent subsidiary directive1

Taxation of cross-border dividends the Parent Subsidiary Directive

Dualresidentsituationsinvolvingthirdcountries

  • Dualresidentparent company

  • Dualresidentsubsidiary company

    If the EU countryis the losercountry, bothscenarios are excludedfrom the ParentSubsidiary regime

  • However……

    • EU Parent company with a PE in a thirdcountry (PE incomeexempt)

    • EU Subsidary company with a PE in a thirdcountry (PE incomeexempt)


Taxation of dividends and in the case law european court of justice

Taxation of dividends and in the case law European Court of Justice

Non-Resident

Shareholders

Resident

Shareholders


Pan european approach vs unilateral approach

Pan-European approach vs. unilateral approach

  • The Court used the pan-europeanapproach in some cases (Manninen, Denkavit, Amurta) butrejectedit in manyothers (e.g. Kerckhaert, FII GLO)

  • Whyisthat?

    • Source State cases

    • Cases wherethereis a breachof EU law (e.g. in Kerckhaert and FII the ECJ found no breach)


Pan european approach vs unilateral approach1

Pan-European approach vs. unilateral approach

Three typespfpan-europeanapproach

  • based on the same treatment (first type: M&S)

  • based on a substantiallysimilar treatment (secondtype: Manninen)

  • based on the applicationof a DTC or on the interactionbetweendomesticlaw (thirdtype: Denkavit and Amurta)


Pan european approach vs unilateral approach2

Pan-European approach vs. unilateral approach

First typepan-europeanapproach:

  • M&S: State of residence perspective

    • Interactionofdomesticlaw: sameruleswhich eliminate the discrimination

    • Pan-europeanapproachused at the levelofjustifications


Pan european approach vs unilateral approach3

Pan-European approach vs. unilateral approach

Secondtypepan-europeanapproach:

  • Manninen: State of residence perspective

    • Pan-europeanapproachused at the levelofcomparability

    • Interactionofdomesticlaw: in the other State the discriminationis (partiallyeliminated)


Pan european approach vs unilateral approach4

Pan-European approach vs. unilateral approach

Thirdtypepan-europeanapproach (I):

  • Denkavit: State of Source

    • used at the levelofcomparability

    • based on the applicationof a DTC

    • isa DTC alwaysrelevanttoascertain the existenceof a breach?

      • Bouanich (para. 46)


Pan european approach vs unilateral approach5

Pan-European approach vs. unilateral approach

Thirdtypeofpan-europeanapproach (II):

  • Amurta: State of source

    • SimilartoDenkavitbutbased on the interactionbetweennationallaw

    • Both AG and the Court denied the applicationof the secondtypepan-europeanapproach (debatable!)


Pan european approach vs unilateral approach6

Pan-European approach vs. unilateral approach

Thirdtypeofpan-europeanapproach (III):

  • Amurta: State of source perspective

    • Differencewith DTC law: usually DIE eliminatedby the State ofSource


Pan european approach vs unilateral approach7

Pan-European approach vs. unilateral approach

Proceduralobstacles in the applicationof the thirdtypepan-europeanapproach:

  • The burdenofproofis on the taxpayer

  • Whatif the creditisnoteffectivelygranted

    • Partialcredit? Absenceoftaxcapacity (e.g. losses in the State of residence)

    • Cash flow disadvantages?


Grazie thanks merci

Grazie, Thanks, Merci…..

Dr. Mario Tenore, LL.M

Vienna UniversityofEconomics and Business

[email protected]


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