31 January 2008

Commission takes steps against Germany, Estonia and the Czech Republic on taxation of outbound dividends

The Commission sent requests for information to Germany and Estonia about their rules under which dividends, and in the case of Germany also interest, paid to foreign pension funds may be taxed more heavily than dividends paid to domestic pension funds. It also sent a letter of formal notice to the Czech Republic about its rules under which dividends paid to foreign companies are taxed more heavily than dividends paid to domestic companies.

"These letters of formal notice are part of a sustained action by the European Commission to eliminate discriminatory taxation of dividends paid to shareholders resident elsewhere in the EU and EEA" said EU Taxation and Customs Commissioner László Kovács.

In Germany, dividends paid by German companies to German "Pensionskassen" are either subject to a reduced withholding tax rate or the "Pensionskassen" can benefit from a partial refund of German withholding taxes. For the "Pensionsfonds" the dividends received are taxed on a net basis and can deduct any costs related to their investment, such as interest they pay to their creditors.

In Estonia dividends paid by Estonian companies to Estonian pension funds are not subject to tax, whereas dividends paid to non-resident pension funds are subject to a withholding tax of 22%.

Concerning the higher taxation of foreign pension funds, the Commission has already sent letters of formal notice to the Czech Republic, Denmark, Spain, Lithuania, the Netherlands, Poland, Portugal, Slovenia and Sweden and to Italy and Finland.

Following up on the complaints it received, the Commission is still examining the situation in other Member States. This may result in the opening of further infringement procedures.

The letter of formal notice to the Czech Republic concerns the taxation of dividends paid to companies resident in Iceland.

The Czech Republic exempts domestic dividends paid to parent companies that hold a participation of 20% or more for at least two years. Dividends paid to Iceland are subject to a withholding tax of 15%, regardless of the size of the participation.

Press release

© European Commission