Convergence of Dividend and Capital Gains Taxation in the European Union from 1990 to 2015

Abstract

The common regulatory framework and the European integration process determine the taxation of corporate distributions in the European Union (EU). Against the background of EU law and jurisdiction, we examine the development of the domestic tax rules and tax burdens on distributions in the form of dividend payments and capital gains in fourteen EU Member States from 1990 to 2015. We find that tax burdens differ for individual and corporate shareholders, particularly at the beginning of the observation period. Individual shareholders face higher tax burdens on dividend payments than on capital gains. For distributions to corporate shareholders, tax systems provide opposed tax incentives due to higher tax burdens on capital gains than on dividend payments. Despite the overall lack of EU harmonization regulation for direct taxes, our results reveal implicit convergence of the tax systems. Hence, tax reforms in the EU Member States show a trend toward equally taxed dividends and capital gains for both shareholder groups.