LED Taxand, Taxand Italy, discusses the CJEU decision on the compatibility with the TFEU of Danish legislation concerning the taxation of dividends paid by Danish resident companies to UCITS resident in another Member State.

 

On 21 June 2018, the Court of Justice of the European Union (“CJEU”) ruled on the Case C-480/16 concerning the compatibility with the TFEU of the Danish tax regime applicable to dividend distributions made by Danish resident companies to Undertakings for Collective Investment in Transferable Securities – within the meaning of the Council Directive 20 December 1985, n. 85/611/EEC (“UCITS”) – not resident for tax purposes in Denmark.

 

Facts and relevant Danish legislation

 

According to the relevant Danish legislation in force in the period at stake, dividend distributions from companies resident for tax purposes in Denmark to UCITS resident in other States of the European Union are subjects to a withholding tax (“WHT”) of 15%, to be reduced on the basis of the double tax treaty in force between Denmark and the State of residence of the UCITS concerned (if any). In principle, the same tax regime is also applicable to UCITS established in Denmark. However, the Danish resident funds are exempt from such WHT if they satisfy certain conditions provided by Art. 16 C of the Danish tax law (ligningslov). In particular, to obtain the status of Art. 16 C fund, the UCITS:

  • Must be a resident of the Denmark for income tax purposes
  • Until 1 June 2005, had to make a minimum distribution to be taxed at the level of the participants
  • After 1 June 2005, had to calculate a notional minimum distribution to be taxed in the hands of the participants through a WHT applied by the fund itself

Discover more: CJEU decision on the compatibility with the TFEU of Danish legislation

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Taxand's Take

With regard to the Italian tax system, it’s worth mentioning that Italian resident UCITS are exempt from corporate income tax while non-resident UCITS are subject to tax (namely in the case of dividends received from an Italian resident company a WHT should be levied at the time of the distribution). Considering also that the exemption provided for Italian resident UCITS is not conditional on any specific requirement (except for regulatory ones), it may be argued that the Italian tax system may be deemed to be not compliant with the European Union law, thus opening the door to possible request for refund of WHTs unduly levied.

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Article tags

International Tax | Italy

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