Dividend taxation in Europe: When the ECJ makes tax policy

Common Market Law Review

Volumn 44, Issue 6, 2007, Pages 1577-1623

  Graetz, Michael J ^a   Warren Jr , Alvin C ^b  

^a YALE UNIVERSITY   (United States)

^b HARVARD LAW SCHOOL   (United States)

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EID: 57749162375     PISSN: 01650750     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (174)

1. See generally, Kingston, "A light in the darkness: Recent developments in the ECJ's direct tax jurisprudence", 44 CML Rev., 1321-1359.
2. Arts. 12, 39, 43, 49, 56 EC.
3. Graetz and Warren, "Income tax discrimination and the political and economic integration of Europe", 115 Yale Law Journal (2006), 1186.
4. Id. at 1216-19.
5. Consider a corporation that earns 100, pays 30 in corporate taxes and distributes half of the remaining 70 to each of its two 50% shareholders, whose individual tax rates are 40% and 20%. Each shareholder is taxed on the gross amount of 50 (cash dividend plus tax credit), subject to a tax credit of 15. As shown in the following table, the corporate levy functions as a withholding tax, in that the corporate income distributed to each shareholder ultimately bears a tax burden determined by that individual's tax rate. Table Presented.
6. If the corporation in the example in the preceding note had paid only 20 in taxes, it would owe 10 more on distribution of the dividend, because the shareholder-credit mechanism assumes that 30 of corporate taxes have been paid for every 70 of cash distributed as a dividend, given a corporate tax rate of 30%.
7. See generally, Vann, "Trends in company/shareholder taxation: single or double taxation?", 88a Cahiers de droit fiscal international (2003), 21.
8. For further discussion of the issues involved in designing an integrated tax system, see US Department of the Treasury, "Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once" (1992);
9. Warren, Integration of the Individual and Corporate Income Taxes, Reporter's Study of Corporate Tax Integration (Am. Law Inst., 1993);
10. and Graetz and Warren, "Integration of Corporate and Individual Income Taxes: An Introduction", 84 Tax Notes (1999), 1767.
11. The foregoing are collected in Graetz and Warren (Eds.), Integration of the U.S. Corporate and Individual Income Taxes: The Treasury Department and American Law Institute Reports (1998) (hereinafter Treasury and ALI Integration Reports).
12. See e.g. US Internal Revenue Code of 1986 (hereinafter IRC) s. 243 (intercorporate dividend deduction), s. 338(h)(10) (non-taxation on the sale of certain shares by parent companies), and s. 1501 (taxation of affiliated corporations).
13. A third concept, sometimes called "national neutrality," argues for a deduction for foreign taxes, rather than a credit or exemption, to alleviate international double taxation. The key idea here is that domestic and foreign taxes are different because a country benefits only from the taxes it collects. For further discussion of these concepts, see US Congress, Joint Committee on Taxation, "Factors Affecting the International Competitiveness of the United States" (JCS-6-91, 1991), 236-248.
14. See also Desai and Hines, "Evaluating international tax reform", 56 National Tax Journal (2003), 487, arguing for "capital ownership neutrality" and "national ownership neutrality" as new benchmarks for evaluating the desirability of international tax reforms; but see Kane, "Ownership neutrality, ownership distortions, and international tax welfare benchmarks", 26 Virginia Tax Review (2006), 53, arguing that those benchmarks do not necessarily promote global and national welfare.
15. For more on capital export and import neutrality, as well as a critical evaluation of the role these concepts play in the analysis of international taxation, see Graetz, "Taxing international income: Inadequate principles, outdated concepts, and unsatisfactory policies", 54 Tax Law Review (2001), 261.
16. See generally Harris, Corporate/shareholder Income Taxation and Allocating Taxing Rights between Countries (1996);
17. Treasury and ALI Integration Reports, supra note 8, at 12-14, 183-98, 735-63;
18. Ault, "Corporate integration, tax treaties and the division of the international tax base: Principles and practices", 47 Tax Law Review (1992), 565;
19. Ault, "International issues in corporate tax integration", 10 Law & Pol'y Int'l Bus. (1978), 461.
20. See e.g. EC Commission, Segré Report: The Development of a European Capital Market (Nov. 1966), 301-302, 311-312, recommending imputation credits be extended to outgoing dividends; Commission, Report of the Committee of Independent Experts on Company Taxation, Ruding Committee Report (March 1992), recommending staged steps to reduce corporate tax distortions, including a minimum base and rate, as well as extension of imputation credits to incoming dividends. For other Commission studies recommending other unified systems of corporate taxation for Europe, see Commission Proposal for a Council Directive Concerning the Harmonization of Systems of Company Taxation and of Withholding Taxes on Dividends, O.J. 1975, C 253/2 (recommending a common imputation system);
21. Van den Tempel, "Corporation Tax and Individual Income Tax in the European Communities" (Commission, Approximation of Legislation Series No. 15, 1970) (Van den Tempel Report), recommending a common system of separate corporate and individual income taxation; Commission, The Development of a European Capital Market; Commission, Fiscal and Fin. Comm., Report on Tax Harmonization in the Common Market (Neumark Report) (July 8, 1962),
22. reprinted in Tax Harmonization in the Common Market 7 (Commerce Clearing House, Inc. ed. & trans. 1963), recommending a common system of split-rate corporate taxation under which preferential rates would apply to distributed earnings.
23. See e.g. the example in note 71, infra.
24. The US is atypical in that it taxes its citizens on their world-wide income even if they are not resident in the US.
25. OECD, Model Tax Convention on Income and on Capital (2005 revision) (hereinafter OECD MTC).
26. See e.g. OECD MTC, Art. 10(2).
27. See e.g. OECD MTC, Arts. 23A and 23B.
28. See e.g. IRC s. 904 (limitation on foreign tax credit).
29. See e.g. IRC s. 902.
30. E.g. Graetz and O'Hear, "The 'Original Intent' of U.S. International Taxation", 46 Duke L.J. (1997), 1021;
31. see also Bird and Scott Wilkie, "Source- vs. residence-based taxation in the European Union: The wrong question?", in Cnossen (Ed.), Taxing Capital Income in The European Union (2000) p. 78, arguing that source and residence are not particularly useful principles for assigning tax jurisdiction.
32. See e.g. OECD MTC, Arts. 5 and 7. For more on the level of penetration necessary to trigger taxation in seven developed countries, see Ault and Arnold, Comparative Income Taxation: A Structural Analysis, 2nd ed. (2004), pp. 395-397.
33. See e.g. OECD MTC, Art. 12.
34. See e.g. OECD MTC, Art. 9.
35. See e.g. OECD MTC, Art. 13.
36. See e.g. OECD MTC, Art. 24.
37. For a more detailed analysis of these provisions, see Warren, "Income tax discrimination against international commerce", 54 Tax Law Review (2000), 131.
38. See e.g. Vann, Division of the International Tax Base, (manuscript, 2007) (discussing structural flaws in the current transfer pricing rules);
39. Arnold, Sasseville and Zolt (Eds.), The Taxation of Business Profits Under Tax Treaties (2003) (papers discussing how the tax treaties should respond to modern business practices).
40. See e.g. IRC Subpart F (providing for current taxation of certain controlled foreign subsidiaries of US companies).
41. Suppose the tax rate is 30% in country R, 40% in country S-1, and 20% in country S-2. Company X, which is based in R, earns 100 in both S-1 and S-2. The after-tax earnings are then repatriated to X's headquarters in R, which taxes foreign income subject to a foreign tax credit. If considered separately, the 60 from S-1 should produce no R tax because the 100 of income has already borne a higher tax in S-1 than is applicable in R. On the other hand, the 80 from S-2 should produce tax of 10 in R because the S-2 income was taxed at only 20%, which is lower than the 30% rate applicable in R. If, however, the foreign income is mixed together, the result is 200 of income that has borne foreign taxes of 60, for an overall rate of 30%, so no additional tax is due in R. These results are summarized in the chart below: Table Presented.
42. See e.g. President's Advisory Panel on Federal Tax Reform, "Simple, Fair and Pro-Growth: Proposals to Fix America's Tax System" (2005) 104, 132-135;
43. Lokken, "Territorial taxation: Why some US multinationals may be less than enthusiastic about the idea (and some ideas they really dislike), 59 Southern Methodist Law Review (2006), 751;
44. US Congressional Budget Office, Revenue Options (February 2007).
45. The requirement of the OECD model treaty that residence countries grant either an exemption or a credit to eliminate double taxation of foreign income would preclude the deduction for foreign taxes suggested by the concept called national neutrality. See note 10 supra; OECD MTC Arts. 23A and 23B.
46. There are some 400 MFN clauses in the more than 2000 bilateral tax treaties. See Hofbauer, Das Prinzip der Meistbegünstigung im grenzüberschreitenden Ertragsteuerrecht: eine Betrachtung anhand des Internationalen Wirtschaftsrechts und des Rechts der Doppelbesteu- erungsabkommen (Linde, 2005).
47. E.g.: a 1991 US Treasury report recommending integration of corporate and individual taxes concluded that taxes paid to foreign countries should not be credited when dividends are paid to individual shareholders, except in return for concessions in bilateral tax treaties. That report pointed out that granting such credits unilaterally would cost about $ 17 billion of revenue (or 19% of total corporate taxes) in 1992. A subsequent Treasury proposal later that same year reversed course and urged that such credits be allowed, presumably to attract support for the proposal from US multinationals. Compare Report of the Department of Treasury on Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once (January 1992) with Department of the Treasury, A Recommendation for Integration of the Individual and Corporate Tax Systems (December 1992). More recently, a 2005 Presidential Panel on tax reform urged that the benefits of integration should be limited to dividends from US companies that had paid US taxes, a restriction not adopted by Congress when it enacted a dividend exclusion provision in 2003. Compare President's Advisory Panel on Federal Tax Reform, supra note 31, at 124-126 with IRC s. 1(h)(11).
48. See Graetz and Warren, supra note 3.
49. See also Lyal, "Non-discrimination and direct tax in Community Law", 12 EC Tax Review (2003), 68 (arguing that the ECJ income tax decisions could generally be analysed as discrimination cases). Mr Lyal was the Commission's representative before the ECJ in most of the cases discussed in this article.
50. For a discussion of these defences by doctrinal category, see Mason, Primer on Direct Taxation in the European Union, (2005) pp. 93-114.
51. See also Snell, "Non-discriminatory tax obstacles in Community Law", 56 ICLQ (2007), 339 (arguing that the ECJ focuses on discrimination in tax cases, applying a narrower test than in regulatory cases);
52. Kingston, op. cit. supra note 1 (arguing that the ECJ has moved away from restriction and towards discrimination analysis in tax cases).
53. As originally enacted in 1990, the Directive applied to parent companies that owned 25 % of a subsidiary, but that percentage has been reduced to 15% and will decline to 10% in 2009. Council Directive of 23 July 1990 on the common system of taxation applicable to parent companies and their subsidiaries in different Member States (90/435/EEC);
54. Council Directive 2003/123/EC of 22 Dec. 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. The 2003 directive also mandated an indirect foreign tax credit in residence countries using a foreign tax credit.
55. For more on this point, see Graetz and Warren, supra note 3, at 1208-1212.
56. We do not discuss in this article the implications of these decisions for companies established outside the EU, which has been a matter of considerable interest. See e.g. Case C-492/04, Lasartec Geselischaft fur Stanzformen mbH v. Finanzamt Emmendingen, judgment of 10 May 2007, nyr (freedom of establishment does not extend to non-member countries);
57. Case C-157/05, Holbock v. Finanzamt Salzburg-Land, judgment of 24 May 2007, nyr (freedom of movement of capital is applicable to incoming dividends from a non-Member State, but the residence country legislation was subject to a grandfather clause in the EC Treaty);
58. Cordewener, Kofler and Schindler, "Free movement of capital: Third country relationships and national law: An emerging issue before the ECJ", 47 ET (2007), 107;
59. Lang and Pistone (Eds.), The EU and Third Countries: Direct Taxation (2007, Linde).
60. Case C-270/83, Commission v. French Republic (Avoir Fiscal) [1986] ECR 273.
61. While not litigated, it is worth noting that this kind of disadvantage to a branch of a foreign corporation might have also been subject to challenge under the standard non-discrimination clause of bilateral tax treaties, unless the treaty explicitly permitted this treatment. The ECJ in Avoir Fiscal also concluded that the fact that the advantage sought could be garnered by organizing the branch operations as a French subsidiary did not justify the discrimination against a branch, since the freedom of establishment allows non-residents to choose any legal form they desire.
62. Case C-307/97, Compagnie de Saint Gobain v. Finanzamt Aachen-Innenstadt [1999] ECR I-6161.
63. The case also involved the exemption of certain foreign holdings for purposes of a capital tax.
64. Saint Gobain, supra note 43, paras. 56-57.
65. Ibid., para 58.
66. Ibid., para 59.
67. Mason, "Flunking the ECJ's discrimination test", 46 Col. J. Trans. Law (forthcoming, 2007).
68. Cf. Mason, ibid., (concluding that the ECJ's reasoning was circular in a sample of ECJ decisions involving income taxation generally).
69. Case C-35/98, Staatssecretaris van Financiën v. B.G.M. Verkooijen, [2000] ECR I-4071.
70. Ibid., at paras. 34-35. The Court relied on the Directive that implemented the Treaty guarantee of freedom of movement for capital during the relevant period, European Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, O.J. 1988, L 178/5-18.
71. Verkooijen, supra note 50, para 58.
72. See e.g. Bond, Gammie, Mokkas, Corporate Incomes Taxes in the EU: An Economic Assessment of the Role of the ECJ (manuscript 2006) (arguing that the tax treatment that matters for investors is the overall combination of source-country and residence-country treatment).
73. Case C-315/02, Anneliese Lenz v. Finanzlandesdirektion für Tirol, [2004] ECR I-7063.
74. Ibid., paras. 20-21.
75. Ibid., paras. 41-43.
76. Ibid., para 36.
77. See ibid., paras. 30-33 and 38.
78. Case C-319/02, Petri Manninen, [2004] ECR I-7477.
79. Ibid., paras. 46-54
80. Ibid., paras. 34-36.
81. Ibid., paras. 34 and 46, 54.
82. The ECJ did not go so far as the A.G., who had concluded that taxes on different taxpayers could be related if they were on the same income or economic process; Manninen, Opinion of A.G. Kokott, para 61.
83. Manninen, para 49.
84. For similar views, see Weber, "In search of a (new) equilibrium between tax sovereignty and freedom of movement within the EC", 34 Intertax (2006), 558, 599: "the Finnish corporate tax functions in the imputation system as a pre-payment for the Finnish income tax"; Englisch, "Fiscal Cohesion in the Taxation of Cross-Border Dividends", 44 European Taxation (2004), 323 (pt 1), 353 (pt2), at 359: "the limitation of a tax credit only to dividends paid out by resident companies is both legitimate and proportionate".
85. Case C-292/04, W. Meilicke v. FA Bonn-Innenstadt, judgment of 6 March 2007, nyr.
86. EFTA Case E-1/04, judgment of 23 Nov. 2004.
87. Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee: Dividend Taxation of Individuals in the Internal Market 20, COM(2003)810, 19 Dec. 2003. The Commission argued in Fokus that failure to grant imputation credits to foreign shareholders was discriminatory. EFTA Case E-2/04, Report for the Hearing, paras. 48-55. In Manninen (supra note 59) the Commission argued that the Finnish imputation system was flawed both because imputation credits were not available for incoming dividends and because they were not available for outgoing dividends, see Opinion of A.G. Kokott paras. 18, 68. The Commission recently confirmed its view that neither incoming nor outgoing dividends may be taxed more heavily than domestic dividends under the EC Treaty. See note 124, infra.
88. Fokus para 30.
89. Ibid., paras. 37-38.
90. As an example of the possibility of lower taxation for cross-border dividends, consider the simple case of 2 partial imputation countries, each with a 50% corporate tax, a shareholder credit for half of the corporate taxes paid, and a shareholder tax rate of 50%. Assume a domestic corporation in country R that earns 100, pays 50 in corporate taxes and distributes the remaining 50 to domestic shareholders, who are eligible for a tax credit of 25. As shown in the table below, the corporate income of 100 will produce total taxes of 62.50, leaving R domestic shareholders 37.50 in cash. Now consider a company in country S that earns 100 and pays 50 in taxes to S. This company then distributes the remaining 50 to its shareholders in country R, along with a (refundable) tax credit of 25. The final result for these shareholders will depend on how R computes its shareholder credit on the incoming dividend. We show two illustrative possibilities below: (1) R provides the 100 of foreign corporate income the same 25 of credit it provides for 100 of domestic corporate income; and (ii) R provides the 75 of foreign dividends (cash plus S credit) an R shareholder credit at the same rate it provides for domestic dividends (25 of credit for every 50 of cash receipts). In either case, the cross-border dividend results in less total tax than the domestic dividend, when credits are mandated for both S and R. (In the interest of simplicity, the example assumes that S does not levy a withholding tax on the dividend. Such a tax would change the results, but not by much, given the low level of such taxes.) Table Presented.
91. Case C-265/04, Margaretta Bouanich v. Skatteverket, [2006] ECR I-923.
92. See Ault and Arnold, supra note 22, at 299-301.
93. IRC S. 302.
94. This treatment is consistent with the OECD Model Tax Treaty. See Commentary, OECD MTC, Art. 10, paras. 28, 31.
95. Bouanich, supra note 72, para 56.
96. Ibid., paras. 24-25.
97. Such sales may be taxed if they have some other connection to the source country, such as relating to the activity of a permanent establishment. See Ault and Arnold, supra note 22, at 397-417.
98. This assumes no step-up in basis at death, as under IRC s. 1014.
99. Ault and Arnold, supra note 22, at 301.
100. For a more detailed description of the UK legislation, see Gammie, Pending Cases Filed by UK courts: The ACT and FII Group Litigation, in Lang, Schuch and Staringer (Eds.), ECJ: Recent developments in Direct Taxation 2007 (2007), pp. 238, 244-256.
101. Companies remained liable for a minimum corporate tax, equal to the difference between the corporate rate and the ACT rate. See id. at p. 245.
102. Joined Cases C-397 & C-410/98, Metallgesellschaft Ltd and Others, Hoechst AG and Hoechst (UK) Ltd v. Commissioners of Inland Revenue and HM Attorney General, [2001] ECR I-1727.
103. See also, Boake Allen Limited and Others v. Her Majesty's Revenue and Customs, [2007] UKHL (23 May 2007), holding that ACT paid by UK subsidiaries to parent companies from outside the EU did not give rise to a claim for compensation under either the EC Treaty (in light of a grandfather clause) or the applicable tax treaty.
104. Metallgesellschaft, paras. 6, 52.
105. Ibid., para 70.
106. Ibid., para 74.
107. See e.g. Vann, op. cit. supra note 7, at 66.
108. Case C-374/04, Test Claimants in Class IV of the ACT Group Litigation v. Commissioners of Inland Revenue, [2006] ECR I-11673
109. This was an alternative argument of the taxpayers in Metallgesellschaft, but the Court did not reach the issue; cf. Metallgesellschaft, supra note 83, para 97.
110. ACT Test Claimants, supra note 88, para 49.
111. Ibid., para 54.
112. Ibid., paras. 75-94. Nor was the UK precluded from limiting the benefit of these credits to companies resident in the other Member State. Ibid., para 92.
113. Ibid., para 60.
114. See e.g. Manninen, supra note 59, para 54.
115. Council Directive 90/435/EEC of July 23, 1990, Art. 6.
116. ACT Test Claimants, supra note 88, para 48.
117. Ibid., paras. 61-63.
118. Metallgesellschaft, supra note 83, paras. 45-51.
119. ACT Test Claimants, supra note 88, paras. 64-66.
120. Ibid., Opinion of A.G. Geelhoed, para 51.
121. Case C-446/04, Test Claimants in the FII Group Litigation v. Commissioners of Inland Revenue, [2006] ECR I-11753.
122. Ibid., para 25. The FID system was in effect from 1994 to 1999. Ibid., at paras. 23, 26.
123. The Court also held that if ACT can be surrendered by a UK parent company to its resident subsidiaries, ACT has to be surrenderable to non-resident subsidiaries subject to the UK corporate tax as permanent establishments. FII Test Claimants, paras. 132-134.
124. FII Test Claimants, paras. 49-57.
125. Ibid., para 74. In response to this holding, the UK is considering various ways of making the treatment of domestic and foreign portfolio dividends received by UK corporations conform to EC law. See HM Treasury, "Taxation of companies' foreign profits: Discussion document", para 3.15 (June 2007).
126. Ibid., paras. 90-94.
127. Cf. Ibid., Opinion of A.G. Geelhoed, para 5 (under imputation systems, the corporation tax serves as a "prepayment for all or part of the shareholder income tax").
128. For other proposals to approximate the effect of passing though the foreign tax credit by providing an exemption for shareholders, see the ALI Report, supra note 8;
129. Taylor, "Approximating capital-export neutrality in imputation systems: Proposal for a limited exemption approach", 57 IBFD Bulletin (2003), 135.
130. The Advocate General in ACT Test Claimants indicated that he disagreed with the approach of the EFTA Court because it did not take into account the relevant tax treaty; ACT Test Claimants, supra note 88, Opinion of A.G. Geelhoed. As noted above, Fokus involved both imposition of a withholding tax and failure to extend imputation credits on outgoing dividends to individual shareholders. The UK system in ACT Test Claimants involved the latter, but not the former, but the EFTA Court's analysis in Fokus does not turn on the distinction.
131. Cf. Stahl, "Dividend Taxation in a Free Capital Market", 6 EC Tax Review (1997), 227, arguing for EU legislation extending shareholder credits for individual portfolio investors to foreign income, but not foreign shareholders, to implement capital export neutrality.
132. Case C-513/04, Mark Kerckhaert and Bernadette Morres v. Belgium, [2006] ECR I-967.
133. Ibid., paras. 21-23. Whether Member States are obligated to relieve international double taxation has been a matter of some dispute, with varying views about whether it would be the obligation of source or residence countries to provide the relief. See e.g. Lang, "Double Taxation and EC Law", in Avi-Yonah, Hines and Lang (Eds.), Comparative Fiscal Federalism: Comparing the European Court of Justice and the US Supreme Court's Tax Jurisprudence (KLI, 2007).
134. Kerckhaert and Morres, Opinion of A.G. Geelhoed, para 34.
135. Any difference in timing due to retention of earnings at the company level could be reduced by requiring a minimum withholding payment each year equal to 30% of corporate income.
136. Case C-170/05, Denkavit Internationaal BV et Denkavit France SARL v. Ministre de l'Économie, des Finances et de l'Industrie, [2006] ECR I-11949.
137. The Court seemed to suggest that a different result might obtain where the residence country did grant a unlimited tax credit, Denkavit, para 46.
138. Cf. Vanistendael, "Denkavit Internationaal: The Balance Between Fiscal Sovereignty and the Fundamental Freedoms?" 16 European Taxation (2007), 210, arguing that the ECJ has adopted a "per country" approach; with Meussen, "Denkavit Internationaal: The Practical Issues, 16 European Taxation", (2007), 244, arguing that the ECJ has adopted an "overall" approach.
139. Denkavit, paras. 34-41.
140. The ECJ discussed tax treaties in a number of the cases discussed in this article. See Avoir Fiscal, supra note 41 (treaty did not apply to income in the case); St. Gobain, supra note 43 (mandating extension of benefits under treaties with non-Member States to a French permanent establishment); Metallgesellschaft, supra note 83 (based on its decision on exemption, Court did not need to decide treaty issue); Bouanich, supra note 72 (legislation based on treaty violates EC Treaty unless national court finds that foreign investor is treated no worse than domestic investor); ACT Test Claimants, supra note 88 (overall balance of treaties respected, including limitations on benefits and absence of MFN clause); Kerckhaert, supra note 111 (treaty not in issue, because superseded by Member State legislation); Denkavit, supra note 115 (treaty did not remedy additional burden on outgoing dividends, apparently because foreign tax credit in country was subject to the standard limitation);
141. see generally Panayi, Double taxation, Tax Treaties, Treaty shopping and the European Community (KLI, 2007).
142. Any difference in timing due to retention of earnings at the parent company level could be reduced by requiring a minimum withholding payment each year equal to 30% of corporate income.
143. A dividend to a foreign shareholder would bear 10 in withholding taxes (i.e. 0.125 × 80), yielding an after-tax return of 70.
144. A domestic shareholder would be taxed on 100, yielding a pre-credit tax of 20, a net tax credit of 10, and an after-tax return of 80. See note 5, supra.
145. See the text supra at note 109.
146. Pending ECJ cases involving cross-border dividends include: Case C-379/05, Amurta v. Inspecteur van de Belastingdienst, (Dutch refundability of domestic, but not foreign withholding);
147. Case C-194/06, Staatssecretaris van Financien v. Orange European Smallcap Fund, (Dutch restriction on tax concessions for outgoing dividends);
148. and Case C-284/06, Hamburg-Am Tierpark v. Burda, (German compensatory withholding on outgoing dividends from a subsidiary).
149. The Commission has also recently announced infringement proceedings against many Member States with respect to both inbound and outbound dividends: Commission requests Belgium to end discriminatory taxation of inbound dividends (IP/06/1045, 20 July 2006);
150. Commission requests Belgium, Spain, Italy, Luxembourg, The Netherlands and Portugal to end discriminatory taxation of outbound dividends (IP/06/1060, 25 July 2006);
151. Commission requests Greece to end discriminatory taxation of dividends from foreign companies (IP/06/1410, 17 Oct. 2006);
152. Commission decides to refer Belgium, Spain, Italy, The Netherlands, and Poland to the Court over discriminatory taxation of outbound dividends and asks Latvia to end such discriminatory taxation (IP/07/66, 22 January 2007);
153. Commission decides to refer Belgium to the Court over discriminatory taxation of inbound dividends (IP/07/67, 22 Jan. 2007);
154. Commission asks nine Member States for information on discriminatory taxation of dividends and interest paid to foreign pension plans (IP/07/616, 7 May 2007);
155. Taxation of outbound dividends: Commission takes steps against Austria, Germany, Italy and Finland (IP/07/1152, 23 July 2007).
156. See press releases in the previous footnote.
157. See generally Graetz and Warren, "Integration of Corporate and Individual Income Taxes: An Introduction", 84 Tax Notes (27 Sept. 1999), 1767.
158. For examples, see St. Gobain, supra note 43, paras. 56-57;
159. Bouanich, supra note 72, paras. 49-50;
160. ACT Test Claimants, supra note 88, paras. 52, 79, 81, 85;
161. Denkavit, supra note 115, paras. 32, 37, 43, 44.
162. A.G. Geelhoed proposed another set of rhetorical distinctions, but it has not been adopted by the Court. See ACT Test Claimants, supra note 88, Opinion of A.G. Geelhoed, paras. 36-57. In particular, "true" restrictions (violative of EC Treaty) are distinguished from "quasi" restrictions (not violative) due to administrative burdens, disparities (differences between tax systems) or division of the tax base (due to the overlapping jurisdiction of source and residence countries).
163. See also Case C-471/04, Finanzamt Offenbach am Main-and v. Keller Holding Gmbtt, [2006] ECR I-2107 (holding a residence country could not deny financing deductions for non-taxable dividends from a foreign subsidiary when such deductions were available for non-taxable dividends from domestic subsidiaries).
164. Cf. Wattel, "Corporate tax jurisdiction in the EU with respect to branches and subsidiaries", 12 EC Tax Review (2003), 194, 199, arguing that there is no basis for source-country entitlement in the EC Treaty.
165. Art. 7.
166. See e.g. Roxan, "Assuring Real Freedom of Movement in EU Direct Taxation", 63 MLR (2000), 831, 873, proposing a cross-migration framework for identifying prohibited taxation of transborder income; Schön, "Tax Competition in Europe the Legal Perspective", 9 EC Tax Review (2000), 90, 97-99, arguing that the EC Treaty requires only that a country establish capital import neutrality within its borders and "not unreasonably hinder" exportation of capital, whether monetary, real, or human; Van Thiel, "The future of the principle of non-discrimination in the EU: Towards a right to the most favored nation treatment and a prohibition of double burdens?", in Avi-Yonah, Hines and Lang, op. cit. supra note 112.
167. See e.g. Van den Tempel Report, supra note 13, at 37.
168. This approach is similar to the "internal consistency test" sometimes applied by the U.S. Supreme Court to determine whether state tax laws are discriminatory. For an argument that the ECJ should replace its comparable internal situation test with the Supreme Court's version of internal consistency, see Mason, supra note 48;
169. see also Kufer and Mason, "Kerckhaert and Morres: A European 'Switch in Time'?" 14 CJEL (forthcoming, 2007), applying internal consistency to argue that Kerckhaert was wrongly decided;
170. Hellerstein, "Is 'internal consistency' dead?: Reflections on an evolving commerce clause restraint on state taxation", 61 Tax Law Review (forthcoming, 2007), tracing the development of the internal consistency test in the US Supreme Court.
171. The Court has also looked beyond the litigating Member State in non-dividend income tax cases. See e.g. Case C-446/03, Marks & Spencer plc v. David Halsey (HM Inspector of Taxes) [2005] ECR I-10837, holding that whether a residence country had to allow deduction of losses of foreign subsidiaries against income of a domestic parent company depended on the treatment of those losses in the source country;
172. Case C-279/93, Finanzamt Köln-Alstadt v. Roland Schumacker, [1995] ECR I-225, German taxation of income of Belgian non-resident had to take into account total income.
173. The Court's dividend decisions, including ACT Test Claimants, are generally consistent with the views expressed by the Commissions' representative before the ECJ. On the other hand, COM(2003)810, supra note 68, at 3.2.4, suggests that the Commission would regard Kerckhaert as wrongly decided. The Commission also argued that the legislation in Fokus violated the fundamental freedoms, a position that the ECJ has not rushed to endorse. Report for the Hearing, EFTA Case E-1/04, Fokus, paras. 48-55.
174. Kingston, op. cit. supra note 1, offers a much more positive view of the ECJ's decisions in some of these cases. She suggests, for example, that ACT Test Claimants can be distinguished from FII Test Claimants on the ground that the UK chose to tax the (inbound) dividend in the latter, but not the (outbound) dividend in the former; id. 1339-1341. Similarly, she suggests that Kerckhaert can be distinguished from Denkavit on the ground that the (inbound) dividend in the former was subject to only one layer of tax in the source country; id. at 1341-1343. From our perspective, these distinctions are flawed, because they depend on separate consideration of corporation and shareholder taxes. From a tax policy perspective, such taxes should be regarded as alternative levies imposed at different stages on the flow of corporate income.