CELEX: 51975PC0392
Language: en
Date: 1975-07-23
Title: PROPOSAL FOR A DIRECTIVE OF THE COUNCIL CONCERNING THE HARMONISATION OF SYSTEMS OF COMPANY TAXATION AND OF WITH HOLDING TAXES ON DIVIDENDS

No C 253/2                          Official Journal of the European Communities                                   5. 11. 75
                                                              II
                                                      (Preparatory Acts)
                                               COMMISSION
              Proposal for a Council Directive concerning the harmonization of systems of company
                                    taxation and of withholding taxes on dividends
                           (Submitted to the Council by the Commission on 1 August 1975)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                          set out as an objective by the Council in the
                                                                  Resolution of 22 March 1971 relating to the creation
Having regard to the provisions of the Treaty                     by stages of economic and monetary union;
establishing the European Economic Community and
particularly Article 100;                    '
                                                                  Whereas, in so far as company taxation is concerned,
Having regard to the proposal of the Commission;                  the imputation system, which provides a tax credit
                                                                  for the recipient of dividends, is the most suitable
Having regard to the Opinion of the Economic and                  solution for ensuring neutrality as regards not only
Social Committee;                                                 the various forms of financing enterprises but also
                                                                  the various legal forms under which they may be
Having regard to the Opinion of the European                      organized, for reducing the opportunities for tax
Parliament;                                                       avoidance by taxpayers with large incomes and for
                                                                  developing the share market through attracting new
Whereas the free circulation of capital within the                savers to -this form of investment; whereas it has in
 Community and the elimination of distortions of                  addition certain advantages in relation to fairness of
competition are fundamental objectives of the                     taxation; whereas it ought therefore to be adopted as
Treaty;                                                           the common system;
Whereas the present systems of company taxation
and of withholding tax on dividends have the                      Whereas it is necessary, for reasons of taxation
consequence that the international movements of                   neutrality, that the rates of corporation tax and of
dividends     are    hampered      by    a     series    of       tax credit shall not differ too much from one
discriminations, double taxations and complicated                 Member State to another;
administrative formalities which tend to reinforce the
separation      of    financial    markets;      whereas,
furthermore, certain differences that exist between               Whereas, in order to avoid discrimination, the tax
these systems may give rise to abnormal capital                   credit attached to the dividends of a company ought
movements;                                                        to be granted to all the recipients of those dividends,
                                                                  wherever in the Community they are resident;
Whereas, in order to ensure greater neutrality in the             whereas, however, exceptions apart, only those
conditions of competition, it is necessary to reduce              recipients who are subject to a tax on income or on
the differences that exist in the taxation of the profits         profits ought to be entitled to this tax credit; whereas
of enterprises;                                                   the tax credit ought to constitute taxable income and
                                                                  ought to be deducted from the tax due by the
Whereas the harmonization of systems of company                   recipient of the dividend and paid to him in so far as
taxation and of withholding taxes is therefore                    it exceeds the amount of that tax; whereas, to avoid
essential; whereas this harmonization was moreover                complicated formalities, this payment ought to be
 ---pagebreak---                                                                                                                           i
 5.11.75                             Official Journal of the European Communities                             N o C 253/3
 made by the Member State in which the recipient is             dividends received by its residents in the same way,
 resident;                                                      wherever in the Community those dividends have
                                                                their source;
 Whereas, where dividends are derived from profits              Whereas the harmonization of systems of company
 that have not borne corporation tax at the normal              taxation and of withholding taxes ought to be
 rate, it is necessary to charge a compensatory tax or a        brought about at the latest on the first day of
 non-repayable advance payment of corporation tax               January of the third year following the date on which
 so as to offset the tax credit attached to those               the present Directive is adopted,
 dividends;
                                                                HAS ADOPTED THE PRESENT DIRECTIVE:
 Whereas, where a parent corporation redistributes
 dividends received from a subsidiary, the recipient of
 those dividends ought to be treated as far as possible
 as if he had received them directly from the                                                I
subsidiary; whereas this principle ought also to be
 applied to dividends derived from permanent                               General provisions and definitions
 establishments;
                                                                                        Article 1
 Whereas in principle there are grounds for requiring
 the budgetary cost of the tax credit to be borne by            1.    The Member States shall adopt:
 the State where the profits from which the dividends
 are derived have been subjected to corporation tax;           — a common imputation system of corporation tax,
 whereas nevertheless there need be no objection to
                                                               — a common          system     of  withholding    tax  on
 Member States agreeing bilaterally to share this cost;
                                                                    dividends,
                                                               in accordance with the provisions of the following
 Whereas the tax credit plays the part of a                    Articles.
withholding tax but whereas the rate of this credit is
 insufficient to discourage recipients of dividends who         2.    The Member States shall not maintain or
have large' incomes from not declaring their                   introduce any other provisions the aim of which is to
dividends; whereas there are therefore grounds for             effect a general reduction in the taxation of dividends
providing a common withholding tax in order to                 alone.
ensure both taxation neutrality and fairness of
taxation; whereas a rate of 25 % appears appropriate
for this purpose; whereas it is nevertheless not                                        Article 2
necessary to charge this withholding tax where there
is no risk of tax evasion;
                                                                1.    For the purposes of the present Directive, the
                                                               expression or the term:
Whereas the withholding tax ought to be simply a               — 'corporation of a Member State' means any
payment on account of the final tax liability of the           corporation which fulfills the conditions laid down in
recipient of the dividends; whereas in order to avoid          Article 2 of Council Directive N o        o^
complicated formalities, any excess of tax withheld
ought to be repaid by the State in which the recipient         *—r~ 'parent corporation' means any corporation that
is resident; whereas Member States must nevertheless           is recognized as a parent corporation by virtue of the
be permitted to rectify the budgetary consequences of          provisions of Council Directive N o         of
applying the common withholding tax system;
                                                               — 'subsidiary' means any corporation that is
                                                               recognized as a subsidiary by virtue of Council
Whereas there are grounds for making certain                   Directive N o           of
transitional      arrangements      to    facilitate  the
                                                               — 'permanent establishment' means any fixed place
introduction in Member States of the common system
                                                               of business recognized as a permanent establishment
of company taxation;
                                                               by virtue of the provisions of Council Directive N o
                                                                      of
Whereas, in order to ensure taxation neutrality, it is         — 'dividend' means that part of the profits of any
essential that every Member State shall treat                   corporation of "a Member State, other than a
 ---pagebreak--- No C 253/4                          Official Journal of the European Communities                               5.11.75
corporation in liquidation, distributed by it by virtue        2.    The provisions of the present Directive do not
of a proper decision of its competent authorities and          concern dividends that the final beneficiary receives
divided among its members in proportion to their               through the intermediary of investment funds or unit
rights as members of the corporation; distributions of         trusts.
bonus shares are not regarded as dividends within the
meaning of the present directive,                                                            II
— 'tax on income or profits' means any one of the                       Provisions relating to corporation tax
following taxes and any identical or substantially
similar taxes which are imposed in addition to, or in
                                                                                        Article 3
place of, the existing taxes:
                                                                1.    Each Member State shall apply a single rate of
    Belgium                                                    corporation tax to the profits, whether distributed or
     impot des personnes physiques/personenbelasting,           undistributed, of its corporations. This rate, called
                                                               the normal rate, may not be lower than 45 % nor
    impot des personnes morales/rechtspersonenbe-              higher than 55 %.
     lasting,
    impot des societes / vennootschapsbelasting;               2.    By way of derogation from the provisions of
                                                               paragraph 1, a Member State may, in particular cases
    Denmark                                                    and for well defined reasons of economic, regional or
                                                                social policy, apply a rate different from the normal
     indkomstskat,                                              rate or complete exemption, either permanently or
                                                               for a limited period.
    selskabsskat;
                                                               If a Member State wishes to avail itself of this option,
     Germany                                                   it shall communicate the proposed provisions to the
                                                               Commission, which shall make its views known to
    Einkommensteuer,                                           the Member State concerned within 30 days of the
    Korperschaftsteuer;                                         receipt of the communication. The Member State
                                                               concerned shall not bring into force the provisions in
                                                               question until this period has expired or after the
     France
                                                               Commission has made its views known to it.
    impot sur le revenu,
    impot sur les societes;                                    3.     Without prejudice to the application of Article 9
                                                               (1) of Council Decision No 74/120/EEC of 18
                                                               February 1974 on the attainment of a high degree of
     Ireland                                                   convergence of the economic policies of the Member
    income tax,                                                States of the European Economic Community, the
                                                               provisions of paragraphs 1 and 2 shall not be an
    corporation profits tax;                                   obstacle to the application by a Member State, for
                                                               the purpose of regulating the economy, of temporary
    Italy                                                      increases or reductions of corporation tax. No
    imposta sul reddito delle persone fisiche,                 account shall be taken of these increases or
                                                               reductions for the purpose of applying the provisions
    imposta sul reddito delle persone giuridiche;              of Article 8 (2).
    Luxembourg                                                                              III
    impot sur le revenu des personnes physiques,
                                                                            Provisions relating to tax credit
    impot sur le revenu des collectivites;
                                                                                       Article 4
    Netherlands
                                                               1.    A dividend distributed by a corporation of a
    inkomstenbelasting,                                        Member State shall confer on its recipient a right to a
    vennootschapsbelasting;                                    tax credit at the rate referred to in Article 8,
                                                               provided:
    United Kingdom                                             (a) that he is resident in a Member State; and
    income tax,                                                (b) that he is subject to a tax on income or profits in
    corporation tax.                                                such a way that the full amount of the dividend
 ---pagebreak--- 5.11.75                            Official Journal of the European Communities                             No C 253/5
     increased by the tax credit is taken into account        dividend within the meaning of Article 2 to a person
      in arriving at the amount of his taxable income         resident in another Member State, the provisions of
      or profits.                                             Articles 4 and 5 shall apply in so far as that
                                                              distribution is considered under the legislation of the
2.      By way of derogation from the provisions of           first Member State to be a dividend conferring a right
paragraph 1 (b), the tax credit may be granted to a           to tax credit.
person resident in a Member State who is exempt
from all tax on income or profits either in respect of
the whole of his income or in respect of that part of                                 Article  8
it consisting of dividends, provided that the person in
question is an institution which is of public interest.
                                                              1.    Each Member State shall fix the rate of the tax
If use is made of this option, the tax credit shall be        credit attached to the dividends distributed by the
granted whatever the Member State in which the                corporations of that State.
dividends have their source.
                                                              2.    There shall be only one such rate in each.
3.     By way of derogation from the provisions of            Member State. It shall be determined in such a way
paragraph 1 (b) the tax credit may be granted to the          that the tax credit shall be neither lower than 45 %
recipient of a dividend where, for reasons of                 nor higher than 55 % of the amount of corporation
administrative convenience, final taxation is levied,         tax at the normal rate on a sum representing the
whether by means of a withholding tax or otherwise,           distributed dividend increased by such tax.
on the amount of the dividend not increased by the
tax credit.
                                                                                      Article  9
4.     The Council, acting by qualified majority on a
proposal of the Commission, shall in case of need
adopt any measures necessary for the application of           1.    In so far as a corporation distributes dividends
the provisions of paragraph 2, first subparagraph,            derived from profits in respect of which it has not
and paragraph 3.                                              borne corporation tax, the Member State of that
                                                              corporation shall charge a compensatory tax equal to
                                                              the tax credit attached to those dividends.
                         Article 5
                                                              Where the dividends are derived from profits that
The tax credit shall be set-off against the amount of         have borne tax at a reduced rate, the compensatory
tax on income or profits to which the recipient of the        tax shall likewise be charged but may to an
dividend is liable. Where the tax credit exceeds that         appropriate extent be reduced.
amount, the excess shall be paid to him by the
Member State which charges that tax.
                                                              2.    The Member States shall have power to charge
                                                              the compensatory tax referred to in paragraph 1,
                                                              where the dividends are derived from profits which
                         Article 6                            have borne corporation tax but which have been
                                                              placed to reserve for more than five years.
By way of derogation from the provisions of Article 4
 (1), tax credits may, pursuant to double taxation
                                                              3.    The provisions of paragraphs 1 and 2 shall not
agreements, be granted in whole or in part to persons
                                                              apply where the legislation of the Member State in
resident in third countries. In no circumstances,
                                                              question provides that the distribution of dividends
however, may such persons be treated more
                                                              gives rise to an advance payment of corporation tax
favourably than persons resident in the Community.
                                                              at least equal to the tax credit, provided that this
The Member States shall cooperate with each other             advance payment is not repayable and that it can be
and with the Commission with a view to adopting a             deducted from the corporation tax of accounting
common position on this matter.                               periods ended within the previous five years.
                                                              4.    This compensatory tax or this advance payment
                         Article 7                            in so far as it is not effectively deducted from the
                                                              corporation tax of the preceding accounting period
If a corporation of a Member State makes a                    or periods, may be repaid to the recipient of the
distribution of profits that does not constitute a            dividends if he is not entitled to the tax credit.
 ---pagebreak--- N o C 253/6                        Official Journal of the European Communities                             5.11.75
If use is made of this option, the repayment must be                                 Article 12
made regardless of the Member State in which the
recipient of the dividends is resident.                      1.    For the application of this Directive, the
                                                             dividends distributed by a corporation of a Member
                                                             State shall be considered to be derived:
                       Article 10                            — firstly from those profits of the last completed
                                                                 accounting period which confer an entitlement to
                                                                 relief from the economic double taxation of
1.    Where a parent corporation redistributes
                                                                 dividends, the parts attributable to profits
dividends received during accounting periods ended
                                                                 originating within that State, to dividends from
not more than five years earlier from a subsidiary
                                                                 subsidiaries in other Member States and to the
resident in another Member State, the amount of the
                                                                 profits of permanent establishments in other
tax credit attached to the dividends from the
                                                                 Member       States    being   determined    on   a
subsidiary shall be included in the basis used in
                                                                 proportional basis,
calculating the amount of the compensatory tax or
advance payment referred to in Article 9 to which the        — then, if necessary, from those profits of
parent company is liable and shall then be set-off               accounting periods ended not more than five
against the amount of that tax or advance payment,               years before the distribution which confer an
but any excess shall not be repayable.                           entitlement to relief from the economic double
                                                                 taxation of dividends, the parts attributable to
                                                                 profits originating within that State, to dividends
2.    Where a corporation of a Member State is not               from subsidiaries in other Member States and to
subject to corporation tax on the dividends which it             the profits of permanent establishments in other
receives from a corporation of that State and it                 Member       States    being   determined    on   a
redistributes those dividends, then:                             proportional basis by reference to the whole of
                                                                 those profits and dividends,
— either the set-off rule referred to in paragraph 1
    shall apply; in this case, the Member State in           — then, if necessary, from those profits of
    question may authorize the set-off even if the               accounting periods ended more than five years
    dividends have been received during accounting               before the distribution which originated within
    periods ended more than five years earlier,                  that State, if they confer an entitlement to relief
                                                                 from the economic double taxation of dividends,
— or, by way of derogation from the provisions of            — finally, if necessary, from any other sources.
    Article 9 (1) and (3)", no compensatory tax or
    advance payment shall be required.                       2.    For the purpose of this Article, the expression
                                                             'profits which confer an entitlement to relief from the
                                                             economic double taxation of dividends' means profits
                        Article 11                           which, if they were distributed, would not give rise to
                                                             the charging of the compensatory tax or in respect of
                                                             which, if they were distributed, the advance payment
In so far as dividends distributed by a corporation of       of corporation tax referred to in Article 9 (3), would
a Member State are derived from the profits of               be effectively deducted from the tax of the
accounting periods ended not more than five years            accounting period or of previous accounting periods,
earlier of a permanent establishment situated in             and also means the profits referred to in Articles 10
another Member State:                                        and 11.
— the profits of the permanent establishment shall                                   Article 13
    confer a right to the tax credit in force in the
    State where the establishment is situated and the        1.    Subject to the provisions of paragraphs 3 and 4,
    rules for corporations laid down in Article 9 shall      the budgetary cost of the tax credit shall be borne by
    be applied to this establishment,                        the Member State of the corporation which
                                                             distributes the dividends.
— the tax credit attached to the profits of the
    permanent establishment shall be included in the         2.    The provisions of paragraph 1 shall also apply
    basis used in calculating the amount of the              where the recipient of the dividends is an institution
    compensatory tax or advance payment referred to          which is of public interest and which is not entitled
    in Article 9 to which the corporation is liable and      to receive the tax credit.
    shall then be set-off against the amount of that
    tax or advance payment, but any excess shall not         3.    Where a parent corporation resident in a
    be repayable.                                            Member State distributes dividends derived from
 ---pagebreak--- 5. 11.75                            Official Journal of the European Communities                            No C 253/7
dividends of a subsidiary resident in' another Member         — where the securities representing a corresponding
State, the State of the subsidiary shall pay to the State          share in the capital of the distributing corporation
of the parent corporation the amount of the tax                    are registered in the names of the holders.
credit attached to the dividends of the subsidiary.
This payment shall not exceed the amount which
                                                                                       Article IS
would result from applying to the dividends of the
subsidiary the rate of tax credit in force in the State
of the parent corporation at the date when that               Where a Member State imposes a withholding tax on
corporation makes its distribution.                            a distribution of profits which does not constitute a
                                                               dividend within the meaning of Article 2, the
4.     Where a corporation of a Member State                   provisions of the present Directive relating to the
distributes dividends derived from the profits of a           withholding tax shall apply.
permanent establishment situated in another Member
State, the State in which the permanent establishment
is situated shall pay to the State of the corporation                                  Article 16
the amount of the tax credit attached to those profits.
This payment shall not exceed the amount which                 1.    The tax withheld under Article 14 shall be set-
would result from applying to the profits of the              off against the amount of the tax on income or
permanent establishment the rate of tax credit in              profits to which the recipient of the dividends is
force in the State of the corporation at the date of the      liable in respect of them.
distribution,
                                                              The tax withheld shall be repaid to the recipient by
5.     By way of derogation from the provisions of             the Member State which charges the tax on income
paragraphs 1 to 4, the Member States may share the             or profits referred to in the previous subparagraph, to
cost of the tax credit, under bilateral agreements,            the extent that it exceeds the amount of that tax, or
provided that such agreements shall in no way affect           where the recipient has no net liability to tax.
the rights of recipients of dividends as set out in the
present directive.                                             2.    By way of derogation from the provisions of
                                                               paragraph 1, a Member State shall not repay the
                                                               withholding tax to any body that is not subject in
                            IV                                that Member State to a tax on income or profits,
                                                               where it appears that such repayment would be
      Provisions relating to the withholding tax on           incompatible with the principle of taxation neutrality.
                         dividends
                                                               The Council, acting by qualified majority on a
                        Article 14                            proposal of the Commission, shall in case of need
                                                               adopt any measures necessary for the application of
                                                               this provision.
1.     Subject to the provisions of the conventions
concluded between Member States and third
countries, each Member State shall impose a
withholding tax of 25 % on the dividends distributed                                   Article 17
by the corporations of that State, no matter who is
the recipient of those dividends.                              1.    In so far as withholding tax collected by a
                                                              Member State is set-off or repaid in another Member
2.    By way of derogation from the provisions of             State, the State which collected the withholding tax
paragraph 1, no Member State shall impose a                    shall refund it to that other Member State.
withholding tax on a dividend distributed by a
subsidiary to a parent corporation resident in any
                                                               2.    The provisions of paragraph 1 shall also apply
Member State.
                                                               where the tax on income or profits is deemed to
                                                               correspond, or is restricted, to the amount of the
3.    By way of derogation from the provisions of             withholding tax.
paragraph 1 of this Article, the Member States shall
have power not to impose a withholding tax on the
dividends distributed to their own residents:                 3.     By way of derogation from the provisions of
                                                              paragraph 1, the Member States may share the
— where the name and address of the recipient and              amount of the withholding tax, under bilateral
    the amount of the dividends received are                   agreements, provided that such agreements shall in
    automatically communicated to the taxation                no way affect the rights of recipients of dividends as
    administration, or                                        set out in the present Directive.
 ---pagebreak--- No C 253/8                         Official Journal of the European Communities                              5. 11.75
                            V                                3.     Within three months from the date of
                                                              notification of the present Directive the Member
      Provisions common to tax credit and to the             States shall communicate to the Commission
              withholding tax on dividends                   particulars of the provisions referred to in Article
                                                             3 (2) first subparagraph, that are in force on that
                                                              date.
                       Article 18
                                                             Within 60 days of the date of that communication the
The provisions of the present Directive shall not be          Commission shall make known to the Member States
an obstacle to the application of national provisions        concerned its position with regard to those
whose purpose is to reduce administrative work and           provisions.
which provide for the non-repayment of tax credit or
of withholding tax where the sums in question are
                                                                                         VII
very small.
                                                                                  Final provisions
                       Article 19
The provisions of the present Directive shall not be                                 Article 21
an obstacle to the application of national provisions
whose purpose is to prevent the recipient of a               Without prejudice to the application of the provisions
dividend from obtaining an unjustified advantage and         of Article 92 of the EEC Treaty, a dividend distributed
which make it possible to refuse the set-off or              to a person resident in a Member State by a
repayment of tax credit or withholding tax.                  corporation of another Member State shall not be
                                                              subjected, in the first Member State, to any less
                                                              favourable taxation treatment or to any more
                            VI
                                                              burdensome requirement connected therewith —
                                                             other than a requirement imposed by the first
                 Transitional provisions                     Member State for the purposes of Article 13 or
                                                             Article 17 — than if that dividend had been
                                                             distributed by a corporation of the first Member
                       Article 20
                                                             State.
1.    Where a parent corporation redistributes, after
the date referred to in Article 22, a dividend received                              Article 22
from a subsidiary before that date, the State of the
parent corporation shall have power to charge the
compensatory tax referred to in Article 9(1).                1.     The Member States shall bring into force the
                                                             necessary legislative and administrative provisions in
The provisions of Article 10 (1) and of Article 13 (3)       order to comply with the provisions of the present
shall apply only in the event of agreement between           Directive not later than the first day of January of the
the Member State of the parent corporation and the           third year following the year of its adoption, and
Member State of the subsidiary.                              shall immediately communicate them to the
                                                             Commission.
2.    Where a corporation of a Member State
distributes, after the date referred to in Article 22,       2.     The Member States shall ensure that the texts of
profits earned by a permanent establishment before           any further main provisions of national law that they
that date, the State of that corporation shall have          adopt in the field covered by the present Directive are
power to charge the compensatory tax referred to in          communicated to the Commission.
Article 9(1).
The provisions of Article 11 and Article 13 (4) shall
only apply in the event of agreement between the                                     Article 23
Member State of the corporation and the Member
State in which the permanent establishment is                The present Directive is addressed to the Member
situated.                                                    States.