No C 278/6 Official  Journal  of the  European  Communities 24.11.  76 
be adapted  to suit  the particular  features  of the 
work  (e.g.,  signs  placed  directly  on tools  and 
machines). 
Done  at Brussels,  30 September  1976. 
The Chairman 
of the Economic  and  Social  Committee 
Henri  CANONGE 
Opinion  on the  proposal  for  a Council  Directive  concerning  the  harmonization  of 
systems  of company  taxation  and  of withholding  taxes  on dividends 
The text  referred  to the  Committee  has  been  published  in Official  Journal  of the 
European  Communities  No  C 253  of 5 November  1975,  page  2. 
A. LEGAL  BASIS  FOR  THE  OPINION 
On 12 August  1975,  the Council  referred  the abovementioned  proposal  to the Economic 
and Social  Committee  in accordance  with  Article  100  of the  Treaty  establishing  the 
European  Economic  Community. 
B. OPINION  OF  THE  ECONOMIC  AND  SOCIAL  COMMITTEE 
The Economic  and  Social  Committee  prepared  its opinion  on the above  matter  at its 
141st  plenary  session,  held  in Brussels  on 29 and  30 September  1976. 
The full  text  of the opinion  is as follows: 
THE  ECONOMIC  AND  SOCIAL  COMMITTEE, 
Having  regard  to  the  Treaty  establishing  the 
European  Economic  Community,  and  in particular 
Article  100  thereof, 
Having  regard  to the request  made  by the Council  of 
the European  Communities  on 12 August  1975  for an 
opinion, 
Having  regard  to the decision  taken  by its Bureau  on 
23 September  1975,  instructing  the  Section  for — a proliferation  of safety  signs  should  be avoided, 
as this would  detract  from  their  effectiveness, 
— supplementary  measures  must  be  taken  to 
monitor  observance  of the  signs  and,  where  the 
nature  of the hazard  allows,  to remedy  the possible 
consequences  of any  failure  to observe  signs, 
— in certain  industries,  such  as farming,  specific 
measures  should  be taken  to enable  the signs  to 
Economic  and  Financial  Questions  to draw  up an 
opinion  on the matter, 
Having  regard  to the  report  submitted  by  the 
Rapporteur,  Mr Peyromaure-Debord-Broca, 
Having  regard  to the  opinion  issued  by the Section 
for Economic  and  Financial  Questions  at its meeting 
on 31 August  1976, 
Having  regard  to the discussions  at its 141st  plenary 
session,  held  on 29 and  30 September  1976  (meeting 
of 29 September  1976), 
24.11.76 Official  Journal  of the European  Communities No C 278/7 
HAS  ADOPTED  THE  FOLLOWING  OPINION: 
by 64 votes  to 25, and  with  12 abstentions: 
1. General  comments 
1.1. The  Committee  has  analysed  the  main 
objectives  of the proposal  for a Directive,  and  found 
them  to be as set out below: 
— relaxation,  in the  interests  of fiscal  justice,  of 
double  economic  taxation,  in those  Member 
States,  where  such  taxation  still  exists, 
— alignment  of structures  and  rates  of: (a) taxes  on 
the profits  of joint  stock  companies,  and  (b) 
withholding  taxes  on dividends, 
— encouragement  to invest  in shares,  by relaxing  the 
double  economic  taxation  of distributed  profits; 
other  things  being  equal,  this  should  bring  about 
a certain  neutrality  in tax  treatment  as regards 
returns  on equity  and  borrowed  capital. 
1.2. The  Committee  is fully  aware  that  this  is just 
one step  towards  establishing  a genuine  Community 
capital  market. 
1.3. It  realizes  that  this  step  is important,  but 
would  stress  that  its scope  is very  limited. 
1.4. In  the  Committee's  view,  the free  movement 
of capital  can  be  helped  by  the  Directive.  But 
attainment  of such  free  movement  hinges  mainly  on 
other  factors  of a completely  different  nature.  In fact, 
the Committee  is still  convinced  that  free  movement 
of capital  cannot  be ensured  without:  (a) a jointly 
agreed  policy  that  is capable  of bringing  about  the 
necessary  monetary  stability;  and  (b) liberalization  of 
movements  of capital. 
1.5. The  Committee  further  believes  that  there 
must  be full  awareness  of the facts  and  the  varying 
situations  as regards  taxation  in the Member  States. 
Rates  of corporation  tax differ;  four  Member  States 
maintain  a double  taxation  system,  while  France,  the 
United  Kingdom,  Belgium  and  Ireland  have  different 
imputation  systems.  At present  Germany  has  various 
rates  of corporation  tax and  as from  1977  will  have 
100 % imputation. 1.6. The  Commission  considers  that  introduction 
of a system  conforming  to the  principles  of the 
proposal  for  a Directive  could  leave  each  Member 
State's  budgetary  revenue  more  or less  at the  level 
obtaining  with  their  present  systems.  However,  the 
Committee  considers  that  serious  difficulties  may  be 
created  by the  numerous  adjustments  that  certain 
Member  States  will  have  to make  as between  the 
various  types  of taxes  in order  to put  their  budgets 
back  into  balance.  Furthermore,  it considers  that 
Member  States  which  are the domiciliary  countries  of 
companies  in  which  non-residents  have  major 
holdings  may  sustain  a very  significant  loss  of 
resources. 
1.7. The  Committee  believes  that  this  will 
necessitate  two  things.  First,  there  will  have  to be 
adjustments  to the rate  of corporation  tax,  with  one 
identical  bracket  applying  to both  corporation  tax 
and the  tax  credit.  Second,  it will  be necessary  to 
narrow  the  gap  between  the  maximum  rate  of 
corporation  tax  and  the  maximum  rate  of personal 
income  tax. 
1.8. The  Commission  considers  that  the  system 
proposed  in the Directive  should  make  it easier  for 
companies  to increase  their  capital  by making  new 
issues.  But  the Committee  is doubtful  as to whether 
this will  happen  automatically. 
1.9. The  proposal  for a Directive  sets  a bracket  of 
upper  and  lower  limits  within  which  rates  of 
corporation  tax  must  lie.  This  may  lead  certain 
Member  States  to seek  revenue  from  other  taxes. 
Such  a shift  from  one  source  of revenue  to others  will 
not always  be easy  to accomplish.  Consequently,  in 
the Committee's  view,  the three  years'  deadline  for 
implementation  of the  Directive  is liable  to face 
certain  Member  States  with  a major  political  and 
economic  difficulty.  But the Committee  considers  that 
extending  the  deadline  will  mean  a danger  of a 
worsening  of the  difficulties  caused  by the  current 
situation. 
1.10.  The  bracket  of corporation  tax rates  is fixed 
at 45 % to 55 %. Depending  on the position  existing 
in the  various  Member  States,  some  advocate 
narrowing  the bracket  and  others  enlarging  it. But  in 
point  of fact,  the Committee  finds  the bracket  to be a 
compromise  between  extremes. 
1.11.  The  device  of the  'withholding  tax'  is 
designed  so that  the tax credit  plus  the withholding 
tax approximates  as nearly  as possible  to the 
maximum  rate  of personal  income  tax.  The  aim  is to 
curb  tax  evasion  where  existing  Member  State 
No C 278/8 Official  Journal  of the  European  Communities 24. 11.76 
regulations  do  not  afford  sufficient  certainty  of 
tracking  down  recipients  of dividends  (registration  of 
shares  in the name  of the holder,  dividend  coupons  in 
holder's  name  and  other  systems). 
But the  Committee  considers  that  persons  subject  to 
tax who:  (a)  have  small  aggregate  incomes,  and  (b) 
are liable  to tax  at a lower  rate  than  that  of the 
withholding  tax may  be penalized,  since  part  of their 
income  will  be withheld  to be reimbursed  later.  It 
would  seem  that  the Member  States  should  take  steps 
to remedy  this  situation,  for it would  seem  difficult  to 
build  in correctives  uniformly  at Community  level. 
1.12.  The  provisions  of the  Directive  are  highly 
technical.  Some  concern  shareholders  who  are 
subject  to personal  income  tax,  whilst  others  relate  to 
inter-Member  State  accounts  where  the  distributing 
corporation  and  the  shareholder  are  not  in the  same 
country.  The  Committee  finds  that,  owing  to their 
extremely  technical  nature,  these  provisions  may  very 
possibly  not  be understood  generally.  This  must  be 
obviated  by very  clear  instructions  to shareholders 
and the tax authorities  in the Member  States.  For  one 
thing,  it must  be clearly  explained  that  the exceptions 
provided  for  in respect  of particular  cases  and 
settlements  between  Member  States  in no way  alter 
the amount  of  domestic  tax  liability  of  the 
distributing  corporation,  as determined  by the  law 
of the Member  State  where  that  corporation  is domi-
ciled.  In other  words,  the right  to a particular  amount 
of tax credit  cannot  be affected. 
1.13.  As  a result  of the  multiplicity  of possible 
circumstances  and  the  fact  that  the  transactions  will 
take place  between  Member  States  alone  or between 
Member  States  and  non-member  countries,  there 
would  seem  to be plenty  of scope  for  distortion 
when:  (a)  subsidiaries  transfer  dividends  to their 
parent  companies,  and  (b)  companies  redistribute 
dividends  received  from  other  companies.  The 
Committee  considers  that  this  issue  seems  to merit 
further  consideration.  It will  take  the matter  up in its 
comments  on the  Articles.  The  Committee  wishes  to 
be sure  that,  as far as possible,  tax credit  is passed  on 
to shareholders  in the Member  States. 
2. Comments  on the Articles 
2.1. Article  1 (2) 
2.1.1.  For  the  sake  of accuracy  and  putting  across 
what  is meant  by the  term  'dividends  alone',  the 
Committee  considers  that  the meaning  of Article  1 (2) 
should  be made  more  explicit  by amending  it to read: 'The  Member  States  shall  not  effect  general 
reductions  or  increases  in  the  taxation  of 
dividends;  increases  or reductions  may  be made 
only  in particular  cases. 
The Commission  shall  list  these  particular  cases 
in an  instrument  implementing  the  present 
Directive.' 
2.2. Article  2 
2.2.1.  A r t i c 1 e 2 (1) 
The Committee  considers  that  unless  the  1969 
proposal  for  a Directive  has  already  been  adopted, 
the term  'parent  corporation'  and  'subsidiary'  should 
be defined  in the present  Directive. 
2.2.2.  A r t i c 1 e 2 (2) 
The Committee  notes  that  investment  companies  are 
excluded  from  the  field  of application  of  the 
Directive  in order  to give  the  Commission  time  to 
reflect  on this  important  field  before  settling  on a 
special  system. 
But in order  to avert  distortions,  the Committee  feels 
that it is essential  that  Article  2 (2) should  be deleted. 
Two  Directives  should  be drawn  up,  one  on unit 
trusts  and  one  on investment  companies.  These  two 
Directives  should  be adopted  at the  same  time  as the 
present  Directive. 
2.2.3.  The  Committee  points  out  that  the 
Commission  has  submitted  a proposal  for a Directive 
on CIUTS  (Collective  Investment  Undertakings  for 
Transferable  Securities).  It urges  that  the  necessary 
link-up  be made  between  the  present  proposal  for  a 
Directive  and  that  on CIUTS. 
2.3. Article  3 
2.3.1.  The  Committee  considers  that: 
(a) the  derogations  provided  for  in Article  3 (2) 
should  be  more  tightly  defined,  i.e.,  more 
precisely  worded.  Furthermore,  it would  be 
logical  for such  a Commission-supervised  system 
of derogations  to be backed  by the  possibility  of 
penalties; 
(b) alignment  of corporation  tax  rates  should  be 
complemented  by  alignment  of  bases  of 
assessment  and,  in  particular,  of  bases  for 
assessing  depreciation; 
24. 11.76 Official  Journal  of the European  Communities No C 278/9 
(c) it should  be better  defined  what  is meant  by 
'temporary'  in Article  3 (3). 
2.4. Article  4 
2.4.1.  Article  4 (1) (b) 
The Committee  considers  that,  in the French  version, 
the term  'assujetti'  should  be replaced  by 'passible', 
for it is clear  that  a shareholder  who  is 'passible' 
though  he is not in fact  'assujetti'  still  ought  to enjoy 
the tax credit. 
2.4.2.  Article  4 (3) 
The Committee  asks  that  the meaning  of the phrase 
'or otherwise'  in the fourth  line  of Article  4 (3) be 
made  more  explicit. 
2.5. Article  5 
2.5.1.  The  Committee  considers  that  the 
complexity  of accounts  between  Member  States  will 
be one  of the  major  difficulties  to be faced  in 
implementing  the Directive. 
2.5.2.  The  Committee  is, nevertheless,  aware  of the 
scope  of the  reimbursement  measure  laid  down  in 
Article  5. The  idea  of this  is to standardize  the rules 
so as to give  Member  States  residents  freedom  of 
choice  as regards  investment  in any  undertaking  in 
any Member  State. 
2.6. Article  8 
2.6.1.  Article  8 lays  down  maximum  and  minimum 
rates  of tax credit.  The  bracket  is exactly  the same  as 
that laid  down  for corporation  tax itself. 
2.6.2.  But  it is possible  to have  a broader  range  if a 
Member  State  selects  one  rate  of tax  credit  and 
another  rate  of corporation  tax  from  within  this 
bracket. 
2.6.3.  Discussion  has  shown  that,  with  things  as 
they stand  at present,  it would  be difficult  for the 
Directive  to incorporate  a solution  to this  eventuality. 
This  is a matter  for regret. 
2.6.4.  The  Committee  therefore  considers  that  the 
present  proposal  for a Directive  is just  one  stage  on 
the way  towards  the  desirable  goal  of  total 
alignment. 
2.7. Article  9 (1) 
2.7.1.  Article  9 (1) might  lead  one  to think  this 
compensatory  tax  would  not  apply  to dividends 
derived  from  profits  in respect  of which  corporation 
tax had  been  paid  in one  or other  of the  Member 
States.  Indeed,  this  would  be conceivable  were  rates 
of corporation  tax  to vary  relatively  little  between one Member  State  and  the next.  But  the Commission 
has made  it clear  that  the corporation  tax in question 
is that  paid  by the  headquarters  of the  distributing 
corporation. 
2.7.2.  The  Committee  urges,  therefore,  that  the 
text be amended  to make  it more  explicit. 
2.7.3.  The  Committee  considers  that  the  rules 
applicable  to EEC  companies'  establishments  located 
in non-member  countries  should  be spelled  out again 
here. 
2.8. Article  10 
2.8.1.  As  was  the case  when  discussing  Article  2, 
the Committee  is concerned  at the present  absence  of 
a Community-level  definition  of the  term  'parent 
corporation'. 
2.8.2.  The  Committee  recognizes  the  value  of 
having  a time  limit  in view  of the difficulty  of tracing 
distributions  made  in any  particular  year,  once  a 
certain  time  has elapsed.  This  time  limit  is set at five 
years  by the Directive.  The  Committee  would  like  the 
time  limit  to be as long  as possible. 
This  is because  it considers  that  this  rule  will  be very 
hard  on  the  shareholder,  whose  income  will  be 
decreased,  after,  moreover,  receipt  of that  income  has 
been  delayed. 
2.9. Article  11 
The Committee  stresses  that  no final  solution  can  be 
found  to the  fundamental  difficulties  of aligning 
corporation  taxes,  until  bases  of  assessment, 
accounting  rules  and  so on are aligned. 
2.10.  Article  12 
2.10.1.  The  Committee  makes  the  following 
comments  on Article  12, which  lays  down  rules  for 
establishing  the  origin  of  distributions.  The 
presumption  made  in this  Article  seems  to be 
inviolable.  The  Committee  asks  whether  it would  not 
be possible  for companies  to be left  free  to indicate 
the headings  in their  accounts  from  which  they 
intend  to derive  their  distributions.  Further,  it 
observes  that  determining  profits  on a proportional 
basis  as provided  in Article  12 may,  in some  cases, 
lead to the  tax  credit  attaching  to dividends  of 
subsidiaries  in other  Member  States  being  forfeited 
when  this  credit  expires  after  five  years. 
2.10.2.  The  Committee  notes  the  Commission's 
statement  that  the  difficulties  referred  to arise  at 
international  level  because  of the need  for machinery 
for financial  compensation  between  the  Member 
States.  These  difficulties  can  nevertheless  be 
No C 278/10 Official  Journal  of the European  Communities 24. 11. 76 
overcome  at the  purely  national  level,  i.e.,  when  all 
the profits  originate  in one  Member  State. 
2.11.  Article  13 
2.11.1.  Article  13 provides  that  the budgetary  cost 
of the  tax  credit  is to be borne  by:  (a) the  Member 
State  of the distributing  corporation,  (b) the Member 
State  of the  permanent  establishment  from  whose 
profits  the  dividend  has  been  derived,  or (c),  when 
dividends  are redistributed,  the Member  States  of the 
subsidiary. 
2.11.2.  The  Committee  is extremely  concerned 
about  the  possible  dramatic  budgetary  impact  in 
Member  States  with  companies  whose  shareholders 
are mostly  resident  in other  Member  States.  Once  a 
country  acts  as host  to a company,  it has  to 
undertake  a certain  amount  of  expenditure  on 
structures,  safety,  communications,  etc.  The 
Committee  feels  that  this  warrants  such  companies 
remaining  subject  to tax in the country  in which  they 
are set  up.  It is true  that  when  profits  are 
subsequently  distributed  within  the  permitted  time 
limits,  the  Member  State  where  a company  has  its 
registered  office  loses  some  of this  revenue. 
The Committee  considers,  however,  that  Article  13 
will not rob  such  countries  of all tax revenue  in such 
cases,  since  approximately  half  of the corporation  tax 
payable  on distributed  profits  will  accrue  to the hosr 
countries  in any  event.  Moreover,  such  countries  will 
obtain  all corporation  tax  levied  on non-distributed 
profit,  since  only  distributions  qualify  for  a tax 
credit. 
This  situation  may  induce  the  Member  States 
concerned  to introduce  new  taxes  in addition  to 
corporation  taxes,  resulting  in distortions  of the 
terms  of competition.  This  is of course  precisely  what 
the Directive  is seeking  to avoid. 
2.12 Article  14 
2.12.1.  The  Committee  points  out  that  there  is no 
need  to over-emphasize  the disadvantages  of having  a 
withholding  tax,  once  there  is the possibility  that  the 
tax may  be reimbursed.  What  is more,  in the  final 
analysis,  Article  14 leaves  a Member  State  free  to 
choose  between  three  solutions  when  it comes  to 
dividends  paid  to its own  residents.  These  solutions 
are: 
— a withholding  tax of 25 %, 
— introduction  of a dividend  counterfoil  system  or 
mandatory  registration  of shares  in the names  of 
the holders.  These  two  systems  rule  out  any 
possibility  of tax evasion,  and — finding  ways  of mitigating  the  hardship  that  a 
withholding  tax  of  25  % might  have  on 
shareholders  with  small  incomes. 
2.12.2.  The  proper  solution  is to allow  the  Mem-
ber States  freedom  to choose  between  these  three 
solutions.  It gets  over  the  disadvantages  of having  a 
withholding  tax,  which  itself  is certainly  useful. 
2.13.  Article  16 (2) 
The Committee  considers  that,  in view  of the 
essentially  subjective  nature  of  the  concept  of 
neutrality  of taxation,  the  text  should  more  clearly 
specify  when  the  measures  provided  for could  apply. 
This  would  obviate  the  need  for  the  expression  'in 
case of need'  in Article  16 (2). 
2.14.  Article  22 
Article  22 stipulates  how  much  time  may  elapse 
before  the  Member  States  conform  with  the 
Directive.  The  Committee  has  noted  the  following 
declaration  made  by certain  of its members: 
'Given  the present  pattern  of tax-revenue  sources 
in certain  Member  States,  the proposed  time  limit 
seems  to give  these  States  little  time  in which  to 
re-order  their  tax resources  in the light  of the new 
constraints  imposed  by  the  present  proposals.' 
Conclusion 
3.1. Subject  to the  general  and  specific  comments 
set out  above  the Committee  approves  the  proposal 
for a Directive,  which  is, in fact  introducing  partial 
alignment  with  a view  to  favouring  the  free 
movement  of capital  within  the Community. 
3.2. Although  some  consider  that  the  brackets 
used  are  either  too  narrow  or too  wide,  and  others 
regret  that  the tax credit  is not 100%,  the Committee 
as a whole  recognizes  that  the  Commission  aims  to 
make  a start  towards  total  alignment  and  has  chosen 
a compromise  for this  purpose.  This  compromise  will 
not satisfy  everybody  completely.  But  it creates 
conditions  that  are  favourable  to gradual  alignment, 
a prerequisite  for achieving  free  movement  of capital 
within  the Common  Market. 
Done  at Brussels,  29 September  1976. 
The Chairman 
of the Economic  and  Social  Committee 
Henri  CANONGE