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Last week, the ECJ concluded that Germany’s decision to not fully refund the €3.6bn College Pension Plan of British Columbia the 15% tax that had been withheld from its dividend income from investments in Germany, was discriminatory relative to local schemes.
As the tax treaty between Canada and Germany did not provide for a full refund, the Canadian pension fund had based its refund request on the free movement of capital between EU member states.
It had argued that this free movement also applied to transfers between an EU member state and a third country like Canada, and that Germany was restricting this.
In its decision, the ECJ overruled the Munich Fiscal Court – which stated that treating non-resident schemes unfavourably might be justifiable – by concluding that Germany’s dividend withholding tax (WHT) indeed discriminated against foreign players.
It added that none of the grounds for justification, established by jurisprudence, could be relied upon.
In the opinion of Jeroen van der Wal, chief executive officer of Dutch global withholding tax recovery expert firm Taxology, who brought the case on behalf of the pension fund, all European member states levying dividend tax on foreign investors had become vulnerable to similar claims as a consequence of the ECJ’s verdict.
“The decision and considerations underpinning it, strengthen WHT reclaims for foreign investors, including insurance companies and sovereign wealth funds,” he argued.
“In the Netherlands alone, 11,000 of this kind of claims, totalling €1.7bn, are pending against the Dutch authorities,” added Van der Wal.