Taxation of EU Cross-Border Corporate Dividends: Convergence and Tax Competition

Abstract

This paper addresses the tax treatment of EU inbound dividends in the EU Member States where the corporate (rather that individual) shareholders are resident, that is dividends paid by a company that is resident in a EU Member State to a corporate recipient shareholder that is resident in a EU Member State, including those dividends not covered by the Parent-Subsidiary Directive (corporate dividends). The paper adopts a comparative approach aimed at providing an explanation of the convergence of policies relating corporate dividends of the EU countries of residence of recipient corporate shareholders in the EU in the last decade, a convergence not fully explained by the top-down harmonization introduced by the Parent-Sub Directive. The paper describes the process of convergence towards exemption for corporate dividends (section 2), and then provides an evolutionary explanation of that process by adopting an evolutionary approach (section 3), together with a discussion of the circulation of the participation exemption model through tax transplants in combination with the ECJ case law (section 4). The paper concludes with comments on the intra-model competition among sub-models of participation exemption (section 5).