24.10.2009

EN

Official Journal of the European Union

C 256/8

(Case C-284/09)

2009/C 256/15

Language of the case: German

Parties

Applicant: Commission of the European Communities (represented by: R. Lyal and B.-R. Killmann, acting as Agents)

Defendant: Federal Republic of Germany

Form of order sought

—Declare that, by taxing dividends paid to a company with its registered office in another Member State or in the European Economic Area at a higher rate than dividends paid to a company with its registered office in the Federal Republic of Germany, the Federal Republic of Germany has failed to fulfil its obligations under Article 56 EC where the minimum threshold for the parent company’s shareholdings in the share capital of the subsidiary set out in Directive 90/435 (1) is not reached, and, with regard to the Republic of Iceland and the Kingdom of Norway, under Article 40 of the Agreement on the European Economic Area.

—order the Federal Republic of Germany to pay the costs.

Pleas in law and main arguments

The subject-matter of the present action is the German law on the taxation of dividends. The provisions of the German income tax law lay down that parent companies with unlimited tax liability in Germany can offset the withholding tax paid during the tax assessment procedure against their liability to corporation tax. Consequently, German parent companies were exempted from the withholding tax. Parent companies with limited tax liability in Germany, on the other hand, have the possibility of being fully exempted from the withholding tax only where the applicable minimum threshold for the relevant parent company’s shareholdings in the share capital of the subsidiary as set out in Directive 90/435 is reached. Below that minimum threshold it is not possible, under German law, for parent companies with limited tax liability to be exempted in the same way as companies with unlimited tax liability. As a result of that law, therefore, German dividend payments of parent companies from other Member States were treated for tax purposes differently from those of parent companies with unlimited tax liability in Germany.

The Commission regards that discrimination as incompatible with the principle of the free movement of capital as tax payers resident in other Member States or in the EEA could, as a result, be dissuaded from making investments in Germany.

It follows from the free movement of capital, which is guaranteed by the EC Treaty and the EEA Agreement, that, if a Member State grants advantages with regard to the taxation of dividends, those advantages cannot be restricted to domestic recipients of dividends. Fiscal discrimination between domestic recipients of dividends and those of other Member States or EEA States is prohibited; domestically granted tax advantages are to be extended also to shareholders from other Member States or EEA States. Where the relevant Member State has also, as in the present case, concluded a double taxation convention with the other Member States, that Member State may rely on that convention only if its rules concerning offsetting fully compensate the possible economic multiple taxation of shareholders from other Member States or EEA States, and in the same way as is guaranteed to domestic shareholders by its own tax system.

That is not, however, the case with respect to the conventions concluded by Germany with the other Member States; in order to prevent double taxation, those conventions provide, indeed, for rules concerning offsetting the German withholding tax against the tax burden in the Member State of the parent company, however, the amount to be taken into account may not exceed the part of the tax assessed prior to the offset, which is imposed on income from Germany. The offset is consequently restricted, a refund of possible funds from the difference between the tax burden in the relevant Member State and the German withholding tax is not provided for in that convention and is therefore excluded.

With regard to a possible justification of the present infringement, it should be noted that Germany has presented no overriding reason in the public interest in the course of the pre-litigation procedure which would be capable of justifying the contested tax system.

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6).