On June 2, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑252/14 Pensioenfonds Metaal en Techniek versus Skatteverket (ECLI:EU:C:2016:402).
Does Article 63 TFEU constitute an obstacle to national legislation under which dividends from a resident company are taxed at source if the shareholder is resident in another Member State, while such dividends — if paid to a resident shareholder — are subject to a tax calculated as a definitive lump sum and on a fictive yield, which, over time, is intended to correspond to the normal taxation of all yields on capital?
The dispute in the main proceedings and the question referred for a preliminary ruling
· In the period 2002-2006, PMT received from Swedish limited companies dividends, upon which a 15% withholding tax was levied, corresponding to a total sum of Swedish kronas SEK 20 957 836 (about EUR 2 262 861).
· In December 2007, PMT asked the Swedish tax authorities to refund the withholding tax paid, on the basis that the levy of that tax was contrary to the EU rules on free movement of capital. PMT claimed that it had to be treated like a fund taxed under the LAP and, on this basis, benefit from more favourable taxation. It claimed that the difference in taxation resulting from the application of the LAP and of the KSL was not justified.
· The Swedish tax authorities having rejected PMT’s request, PMT brought an action before the Länsrätten i Dalarnas län (Dalarna County Administrative Court, Sweden) which was dismissed too.
· Following the appeal brought by PMT, the Kammarrätten i Sundsvall (Sundsvall Administrative Court of Appeal, Sweden) held, first, that it had not been demonstrated that PMT had been unfavourably taxed in comparison with equivalent Swedish pension funds and, second, that it had not been proved that the different taxation regimes were discriminatory.
· PMT brought an appeal in cassation before the Högsta förvaltningsdomstolen (Supreme Administrative Court, Sweden) claiming that the scheme of the national legislation on the taxation of pension funds was discriminatory. The capital yield tax replaces not only the withholding tax, but also capital gains tax on transfers and on interest, and the taxation of the dividends paid to Swedish pension funds is considerably lower than the formal levy on capital yield tax. Foreign pension funds, being subject to gross taxation in the form of a withholding tax levied at the point of distribution of those dividends, also may not benefit from capping over time, sought by the lump sum method.
· Furthermore, the calculation of capital yield tax applicable to resident pension funds allows for the deduction of financial liabilities, whereas the withholding of tax applicable to non-resident shareholding pension funds does not allow it.
· Finally, whereas tax is withheld when the dividends are distributed, capital yield tax, for its part, is calculated and levied in the year following the distribution of dividends, creating a liquidity disadvantage for non-resident pension funds.
· The Swedish tax authorities contend that the national tax framework provides for two different methods of taxation and does not give rise to any discrimination. The actual taxation of the dividends paid to resident pension funds corresponds to the withholding tax levied in accordance with the tax agreements on dividends paid to non-resident pension funds. The regime applicable to non-resident pension funds can, furthermore, be more advantageous, first, because of trends in the yield of government bonds and, second, on the ground that taxation is levied only once the dividends have been distributed, whereas resident pension funds pay capital yield tax yearly. The expenses that resident pension funds may potentially deduct by virtue of their liabilities being taken into account in the calculation of the capital base do not relate to the dividends received and there are no liabilities directly associated with the dividends on the capital invested in Sweden. Resident pension funds pay in advance a monthly tax on profits by way of payment on account and do not therefore benefit from any liquidity advantage.
· The referring court confirms that the taxation regime applied to pension funds depends on their status as a resident on the national territory and the nominal tax rate at issue in the case pending before it is set at 15% both for capital yield tax and the withholding tax.
· That court also states that capital yield tax is based on a notional yield. This means that, having regard to the method of calculation of the tax base for capital yield, the taxation could be more advantageous for resident shareholders some years, whereas in other years, by contrast, the outcome of the taxation of those shareholders could be less favourable compared to the outcome of taxation of non-resident shareholders. It states that capital yield tax is levied annually without taking into account any distribution of dividends. Furthermore, the referring court states that it was argued before it that the scheme of the national legislation on the taxation of pension funds was discriminatory, in particular because financial losses could be deducted when the base for capital yield tax was calculated and because the point at which the tax is levied can create a liquidity disadvantage for foreign pension funds.
· In those circumstances, the Högsta förvaltningsdomstolen (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Does Article 63 TFEU constitute an obstacle to national legislation under which dividends from a resident company are taxed at source if the shareholder is resident in another Member State, while such dividends, if paid to a resident shareholder, are subject to a tax calculated as a definitive lump sum and on a notional yield, which, over time, is intended to correspond to the normal taxation of all yields on capital?’
The CJEU judged as follows:
· Article 63 TFEU must be interpreted as not precluding national legislation under which the dividends distributed by a resident company are subject to a tax levied at source (a withholding tax) where those dividends are paid to a non-resident pension fund and, where those dividends are paid to a resident pension fund, to a tax calculated as a definitive lump sum and on a notional yield, which, over time, is intended to correspond to the normal taxation of all yields on capital under the general law regime;
· it nevertheless precludes non-resident pension funds being prevented from taking into account any professional expenses directly linked to the receipt of dividends, where the calculation method for the tax base of resident pension funds allows them to be taken into account, that being a matter for the referring court to determine.
For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.
The opinion in this case as delivered on September 10, 2015 by Advocate General Szpunar can be found here (Not available in the English language, but in several other languages).
Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).
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