INTRODUCTION: In recent years integration has been achieved through tax harmonisation and through European Court of Justice (ECJ) case law This integration had a strong impact on all members of the European Union (EU) and of the European Economic Area (EEA). An authentic internal market was created with respect to dividend payments within the EU and the EEA. In this situation, one of the more important cases about dividend taxation was the Amurta case. Amurta case: C-397/05 DIVIDEND TAXATION

Group structure AMRTA S.G.P.S. (Portugal) AMRTA S.G.P.S. (Portugal) SONAETELE COM BV (Netherland) SONAETELE COM BV (Netherland) TAFIN S.G.P.S. (Portugal) TAFIN S.G.P.S. (Portugal) PERSIN S.G.P.S. (Portugal) PERSIN S.G.P.S. (Portugal) RETAILBOX BV (Netherland) RETAILBOX BV (Netherland) 14% 66%6%

Case explanation (1/2) NETHERLAND LEGISLATION: ≥ 25% PATICIPATION < 25% PATICIPATION PARTICIPATION EXEMPTION (Directive 90/435/eec) PARTICIPATION EXEMPTION (Directive 90/435/eec) Beneficiaries in Netherlands or with permanent establishment in Netherlands (at least 5% participation) Beneficiaries in Netherlands or with permanent establishment in Netherlands (at least 5% participation) Beneficiaries situated in other Member States exemption 25% withholding tax

Case explanation (2/2) In 2002, Retailbox B.V. paid a dividend to Amurta S.G.P.S.. This dividend net of withholding tax paid at the statutory rate of 25 %. Amurta owned less than 25% in the capital of Retailbox, so the exemption from withholding tax provided for in the Parent-Subsidiary Directive was not applicable. Amurta appealed first to the local tax administration and was objected. Than it appealed to the Court of Appeal of Amsterdam The legal argument was that the payment of dividend withholding tax constituted a discriminatory restriction on the free movement of capital prohibited by Article 56 of the EC Treaty

ECJ JUDGEMENT (1/5) By order of 21 September 2005, the Court of Appeal referred the case to the European Court of Justice for a preliminary ruling on the following questions: 1° QUESTION: “Is the exemption [from dividend withholding tax] compatible with the provisions on the free movement of capital (…) of the EC Treaty, given that the exemption is applicable only to dividend payments to [domestic] shareholders liable to corporation tax in the Netherlands or to foreign shareholders with a permanent establishment in the Netherlands, with the shares forming part of the assets of that permanent establishment, to whom the [participation exemption] applies? ….“

ECJ JUDGEMENT (2/5) The principle of FREE MOVEMENT OF CAPITAL presented by ARTICLE 56 EC says that all restrictions on movement of capital between the Member States and between Member States and third countries shall be PROHIBITED. But, to respect the article 56EC, it is required to respect the provisions in ARTICLE 58 EC, which distinguishes the case of unequal treatment permitted from discrimination prohibited. The discrimination permitted by 58 EC must: 1. concern situations which are not objectively comparable or, 2. be justified by overriding reasons in the public interest

ECJ JUDGEMENT (3/5) In Amurta case the SITUATION of corporate shareholders resident for tax purposes in the Netherlands and those resident for tax purposes in another Member State are OBJECTIVELY COMPARABLE. A different treatment of dividends paid by a company resident for tax purposes in the Netherlands according to whether or not the shareholders of that company are resident for tax purposes in Netherlands constitutes an ARBITRARY DISCRIMINATION => THE DISCRIMINATION IS NOT PERMITTED The unequal treatment of foreign beneficiaries from resident beneficiaries is a non- permitted discrimination not acceptable by the article 56 and 58 EC. The EC law prevails over the domestic law even if there is double tax convention (in Amurta case, Netherlands and Portugal double taxation convention)

ECJ JUDGEMENT (4/5) 2° QUESTION: “….Does the answer to the [above] question depend on whether the State of residence of a foreign shareholder/company to which the exemption [from dividend withholding tax] does not apply grants that shareholder/company full credit for Netherlands dividend [withholding] tax?” By order of 21 September 2005, the Court of Appeal referred the case to the European Court of Justice for a preliminary ruling on the following questions:

ECJ JUDGEMENT (5/5) According to Amurta, the dividend received from Retailbox is exempt from corporation tax in Portugal and any withholding tax paid on the dividend in the Netherlands cannot, therefore, be credited against Portuguese corporation tax. Even if the withholding tax paid in the Netherlands could be credited in full against Portuguese corporation tax, which is for the national court to determine, this would be TOTALLY IRRELEVANT if the credit is granted by Portugal unilaterally. A Member State may not rely on the existence of a full tax credit granted unilaterally by another Member State to a recipient company established in the latter Member State in order to escape the obligation to prevent economic double taxation of dividends.

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