Volume 28 (2019)

Volume 28 (2019) / Issue 2

Ward Willems, 'Withholding Taxes Within the Internal Market After Sofina: Chronicle of a Death Foretold?' (2019) 28 EC Tax Review, Issue 2, pp. 101–113


On 22 November 2018 the European Court of Justice (‘CJEU’) ruled in Case C-575/17 on the French rules for taxing dividends distributed to companies in deficit. Dividends distributed to non-residents are subject to withholding tax, while distributions to resident beneficiaries are exempt from withholding tax (‘WHT’) but subject to corporate income tax (‘CIT’) instead. While non-resident companies are subject to immediate taxation, resident companies could benefit from a cash-flow advantage when they remain in deficit, or even a permanent exemption when they liquidate before becoming profitable (in absence of a positive CIT base). The former violates the freedom of capital according to the Court. The importance of the present judgment can hardly be underestimated, as it may severely complicate the further application of existing WHT regimes in the many Member States applying such rules. The judgment is furthermore remarkable for several reasons which will be discussed in the present article. Perhaps the most striking element of the judgment concerns the comparability analysis, where the existence of a foreign deficit was taken into account to influence the tax treatment of a non-resident in the source state (thereby departing from the principle of territoriality).

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ISSN: 0928-2750
ID: ECTA2019013