Taxation of Cross-Border Dividends and EC Fundamental Freedoms

Abstract

The very first direct tax case scrutinized by the European Court of Justice (ECJ) by applying the EC fundamental freedoms concerned dividend taxation. Ever since, most of the fundamental questions related to the scope of the fundamental freedoms and their relationship to aspects of the Member States’ fiscal sovereignty have crystallized in the field of dividend taxation. To be mentioned in particular: Developing criteria for comparability of situations, supranational versus national approach in assessing a discrimination/restriction, fiscal cohesion, balanced allocation of taxing rights and international double taxation, relationship between freedom of establishment and free capital movement in third-country cases. Thus, the dividend tax cases of the ECJ have not only exerted great influence on the shape of Member States’ corporation tax systems; they have also contributed substantially to the Court’s understanding of the interaction between fundamental freedoms and non-harmonized national tax law. The now abundant case law therefore merits a critical review regarding its coherence, the underlying conceptions of the scope and thrust of European Union fundamental freedoms, and the fundamental issue of how to reconcile them with core principles of fair and balanced taxation in an imperfect internal market.