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Norwegian comment on Italian withholding tax ruling

11 Mar 2010

In a recent ruling (C-540/07) the European Court of Justice (ECJ) concluded that dividends distributed to companies established in other Member States are subject to a less favourable tax regime than applied to dividends distributed to resident companies in the Italian Republic. The ECJ ruled that Italian Republic has failed to fulfil its obligations under Article 56 (1) of the European Charter. Taxand Norway comment on the Italian withholding tax ruling from their perspective.

The Commission of the European Communities did also seek a declaration from the Court with regard to dividends distributed to companies established in states party to the Agreement of the European Economic Area (EEA). The result? The Italian Republic has failed to fulfil its obligations under Article 40 of the EEA Agreement regarding the free movement of capital between states party to that Agreement.

The Court's reason for this difference in treatment was based on the fact that EU Members States through Directive 77/799 had established a framework of cooperation (i.e. exchange of information) between the competent authorities to take care of the public interest regarding the fight against tax evasion. However it was considered not to be the case with respect to such cooperation with the EEA member states. The Italian Republic has maintained, without being contradicted, that no provision for exchange of information exists between it and the EEA member states (Liechtenstein, Iceland and Norway).

From a Norwegian perspective the situation looks somewhat different:

Article 26 of the tax treaty between Italy and Norway contains regulations with respect to exchange of information. It is our view the content of these regulations is mainly the same as in Directive 77/799 and would be a natural part of the ECJ proceedings with respect to Italian tax treatment of dividends distributed to member states of EEA. Furthermore it should be noticed that both Italy and Norway have ratified the Convention of Mutual Administrative Assistance in Tax Matters (in force from 1995 in Norway) which in Chapter III contains regulations regarding Exchange of information.

Taxand's Take

Having been requested to consider the tax treatment of distribution of dividends to EEA countries we would normally expected the Court to consider the impact of such regulations related to exchange of information. However as the Italian representative of the ECJ maintained that no provision for exchange of information exists in the relevant tax treaty with Norway, without being contradicted, we consider it an open issue that could be solved on a bilateral basis between competent authorities in the countries involved without taking the issue to court once more.

Your Taxand contact for further queries is:
Per Harg
T. +47 23 11 65 00

Taxand's Take Author