Luxembourg, 20/12/2007 (Agence Europe) - The European Court of Justice ruled in case C-101/05 that the distribution of shares from a company can be subject to income tax if the parent company is based in a third country (non-member of the EU) where it is difficult to access relevant information. Although this tax constitutes a restriction to free movement of capital, it is, however, justifiable.
A owns share in Swiss company X, which is considering distributing the shares which it holds in one of its subsidiaries in Sweden. The Skatterättsnämnden (Revenue Law Commission) had previously planned to exonerate this distribution of income tax because Swedish law grants tax payers resident in Sweden a tax exoneration on dividends distributed, in the form of shares from a subsidiary, by a limited company based in Sweden or in another member state of the European Economic Area (EEA). Skatteverket (Swedish tax authority) appealed this decision at the Regeringsrätten (National Court) because this exoneration did not apply when such a distribution came from a company based in a third country and non member of the EEA, which had not concluded an agreement with Sweden that included information exchange. The Regeringsrätten is asking the ECJ whether this Swedish legislation is compatible with Community law.
In a ruling on 18 December, the ECJ gave an affirmative reply. If the Swedish authorities do not have tax information on the parent company because it is based outside the EEA, it is reasonable that it does not benefit from the exoneration in question. It is true that this is discrimination against some companies due to the restriction of free movement of capital, but this is justified by the need to guarantee efficient tax inspections, imperative to the general interest. (C.D)