Brussels, 05/07/2007 (Agence Europe) - On Thursday, the European Commission decided to refer Greece to the European Court of Justice (ECJ) due to the Greek tax rules, according to which non-resident partnerships in Greece are taxed more heavily than those resident in Greece. The Commission is of the view that these rules are discriminatory and incompatible with the EC Treaty which guarantees the freedom of establishment. The Commission has also decided to refer Greece to the ECJ because Greece exempts from income tax dividends paid by Greek companies to individuals while taxing dividends paid by companies established in other member states. As far as this different treatment is applied to dividends from companies established in the EU or in the EEA/EFTA countries, the Commission considers it to be discriminatory and contrary to the EC Treaty which guarantees the free movement of capital.
Discriminatory taxing of non-residents. There is a minor difference (5%) between the tax rates for domestic partnerships and foreign partnerships, but Greece argues that this difference is justified due to the fact that a proportion of the profits (50 %) of a domestic partnership is taxed in Greece in the hands of the individual partners. The Commission considers that this situation does not necessarily entail higher taxation; on the contrary, it may in some circumstances lead to an even lower effective rate of tax.
Moreover, Greece argues that no foreign partnership has complained about discriminatory tax treatment and that, on the basis of the data available, there were no foreign partnerships operating in Greece in the form of a branch. However, the Commission considers these arguments to be irrelevant.
Discriminatory taxation of dividends from foreign companies. After the ruling in the Verkooijen case (Case C-35/98), a different treatment of dividends according to their origin constitutes a restriction of the free movement of capital, guaranteed by Article 56 of the EC Treaty. In cases where the individual shareholder has control over the foreign company, the same difference in treatment constitutes a restriction of the freedom of establishment guaranteed by Article 43 of the EC Treaty. The Commission sent a reasoned opinion to Greece on 18 October 2006. Greece argued in its answer that the individual recipients of inbound dividends are entitled to an ordinary tax credit (i.e. tax paid abroad can be offset against the tax payable on foreign-source income) for any withholding tax effectively paid abroad. However, the Commission considers that, due to the progressivity of the individual income taxation, the credit method may lead to a higher taxation. (ol)