In P Ferrero e SpA v Agenzia delle Entrate—Ufficio di Alba (ECJ Case C-338/08) and General Beverage Europe BV v Agenzia delle Entrate—Ufficio di Torino 1 (ECJ Case C-339/08), the Italian tax authorities levied withholding taxes on certain financial transfers by Italian subsidiaries to their Netherlands parent companies, which the tax authorities considered to be dividend distributions.
The companies appealed, and the case was referred to the ECJ for rulings on the interpretation of Directive 90/435/EEC. The ECJ held that it was for the national courts ‘to ascertain, in particular, whether the Italian tax authorities in practice waive, as a matter of course, the tax revenue from the adjustment surtax in the event of a dividend distribution by an Italian company to a Netherlands company, including where the adjustment surtax is not collected by those tax authorities but the amounts corresponding to that surtax are transferred directly by the Italian company to the Netherlands company.
If there were found to be such a waiver, that transfer, when carried out, could be regarded as a distribution of profits.’ The ECJ concluded that it appeared that ‘a withholding tax such as that at issue in the cases in the main proceedings is not a withholding tax on distributed profits generally prohibited by Article 5(1)’ of the Directive.
However, ‘if the referring court were to find that the “refund” of the “adjustment surtax” is not fiscal in nature, a withholding tax such as that at issue in the cases before it would be a withholding tax on distributed profits which is, as a rule, prohibited by Article 5(1)’.
Furthermore, if the national court were to regard the tax at issue as falling within Article 5(1), ‘that withholding tax could be held to come within the scope of Article 7(2) of that directive only if, first, that convention contained provisions intended to eliminate or mitigate the economic double taxation of dividends and, secondly, the charging of that withholding tax did not cancel out the effects thereof, a matter which it would be for the referring court to assess’.
Why it matters: The ECJ has referred the case back to the Italian authorities with guidance on the interpretation of Directive 90/435/EEC. The judgment appears to suggest that the Italian legislation is compatible with the Directive.
In P Ferrero e SpA v Agenzia delle Entrate—Ufficio di Alba (ECJ Case C-338/08) and General Beverage Europe BV v Agenzia delle Entrate—Ufficio di Torino 1 (ECJ Case C-339/08), the Italian tax authorities levied withholding taxes on certain financial transfers by Italian subsidiaries to their Netherlands parent companies, which the tax authorities considered to be dividend distributions.
The companies appealed, and the case was referred to the ECJ for rulings on the interpretation of Directive 90/435/EEC. The ECJ held that it was for the national courts ‘to ascertain, in particular, whether the Italian tax authorities in practice waive, as a matter of course, the tax revenue from the adjustment surtax in the event of a dividend distribution by an Italian company to a Netherlands company, including where the adjustment surtax is not collected by those tax authorities but the amounts corresponding to that surtax are transferred directly by the Italian company to the Netherlands company.
If there were found to be such a waiver, that transfer, when carried out, could be regarded as a distribution of profits.’ The ECJ concluded that it appeared that ‘a withholding tax such as that at issue in the cases in the main proceedings is not a withholding tax on distributed profits generally prohibited by Article 5(1)’ of the Directive.
However, ‘if the referring court were to find that the “refund” of the “adjustment surtax” is not fiscal in nature, a withholding tax such as that at issue in the cases before it would be a withholding tax on distributed profits which is, as a rule, prohibited by Article 5(1)’.
Furthermore, if the national court were to regard the tax at issue as falling within Article 5(1), ‘that withholding tax could be held to come within the scope of Article 7(2) of that directive only if, first, that convention contained provisions intended to eliminate or mitigate the economic double taxation of dividends and, secondly, the charging of that withholding tax did not cancel out the effects thereof, a matter which it would be for the referring court to assess’.
Why it matters: The ECJ has referred the case back to the Italian authorities with guidance on the interpretation of Directive 90/435/EEC. The judgment appears to suggest that the Italian legislation is compatible with the Directive.
