Europe. NEW OPPORTUNITIES FOR DIVIDEND WITHHOLDING TAX REFUNDS EU / EEA Tax Exempt Entities Handbook

Transcription

1 Europe NEW OPPORTUNITIES FOR DIVIDEND WITHHOLDING TAX REFUNDS EU / EEA Tax Exempt Entities Handbook 3rd Edition April 2012

2 I n t r o d u c t i o n We are pleased to present the third edition of this handbook, which was developed in cooperation with LawInContext Pte. Ltd., the legal information and training venture of Baker & McKenzie. Heico Reinoud Baker & McKenzie Amsterdam Tel: Fax: heico.reinoud@bakermckenzie.com In many European Union (EU) member states, tax legislation exists that discriminates between resident and non-resident investors. In this handbook, we will focus on legislation under which domestic pension funds, collective investment funds (including companies) and charitable institutions are entitled to an exemption or a refund of dividend withholding tax, whereas such investors resident in other member states (or the European Economic Area) are not. Such discriminatory legislation may violate the freedom of establishment or the freedom of capital, which have been stipulated in the Treaty on the Functioning of the European Union. In recent years, the European Court of Justice decided in various cases that domestic rules which deny an exemption or refund of dividend withholding tax to a foreign pension fund, while granting such an exemption/refund in domestic situations are in conflict with EU law. The developments regarding the discriminatory treatment of pension funds may also have consequences for other tax exempt investors such as collective investment funds and charitable institutions who face similar discriminations. In many jurisdictions the domestic rules are amended to be in line with the EU Treaty on the Functioning of the European Union. In the Netherlands, for example, the law has been amended as per 2007, in order to end the discriminatory treatment of foreign tax exempt entities. In this handbook, we will summarize the possibilities under existing law to obtain a refund, identify discriminations that are potentially in violation with EU law and explain which actions could be undertaken to obtain a refund. In some cases, formal proceedings may be required in order to obtain a refund. Baker & McKenzie has an international team of EU law specialists who have substantial experience with national proceedings and proceedings before the European Court of Justice and who would be happy to assist you in this respect. Harald van Dobbenburgh Baker & McKenzie Amsterdam Tel: Fax: harald.vandobbenburgh@bakermckenzie.com We hope this handbook will give you a good insight into the possibilities in the various EU member states of claiming refunds of dividend withholding tax to which many institutional investors may be entitled. In this respect, we are pleased to announce that a chapter has been included on Luxembourg withholding tax aspects in this 2012 edition of the handbook. If you have any questions, please do not hesitate to contact us or your regular advisor at Baker & McKenzie. Kind regards, Heico Reinoud, Baker & McKenzie Amsterdam Harald van Dobbenburgh, Baker & McKenzie Amsterdam

3 I n d e x Executive Summary 4 Country Offering Austria 8 Belgium 12 Czech Republic 18 France 20 Germany 23 Hungary 29 Italy 30 Luxembourg 34 Netherlands 39 Poland 43 Spain 48 Sweden 53 United Kingdom 57 European Tax Practice Group 59 LawInContext: Global Institutional Investor Helpdesk 64

4 E x e c u t i v e S u m m a r y Due to recent developments in EU law Pension Funds (PFs), Charitable Institutions (CHIs) and Collective Investment Funds (CIFs) may, in certain European countries, qualify for a refund of dividend withholding tax (DWT). The tables hereunder present a summary of the refund possibilities for PFs, CHIs and CIFs for the countries discussed in this handbook. AUSTRIA Institution CHIs PFs CIFs Refund possibility Foreign institutions meeting the legal requirements for the qualification as a CHI are exempt from DWT in Austria. Therefore, no refunds are available. Foreign PFs resident in the EU/EEA are not exempt from DWT in Austria, while domestic PFs are exempt. This may be a violation of EU law. PFs resident in the EU/EEA should request a refund of DWT. Refunds could be requested up to five (5) years after the DWT was paid. Court proceedings may be required. Refunds are only available under an applicable tax treaty. BELGIUM Institution CHIs PFs CIFs Refund possibility Foreign CHIs are exempt from DWT. Therefore, no refunds are available. Foreign PFs are exempt from DWT. Therefore, no refunds are available. Foreign and domestic CIFs are, in principle, subject to Belgian DWT. In case a CIF holds a share participation of at least 10% in a Belgian company, foreign CIFs are discriminated against domestic CIFs, as only dividends distributed to the latter are exempt from Belgian DWT. Therefore, refunds might be available in such case, but court proceedings will be required. In 2011, the European Commission referred Belgium to the European Court of Justice to change its provisions with regard to the higher taxation of dividends and interest received by foreign investment companies. CZECH REPUBLIC Institution CHIs PFs CIFs Refund possibility Domestic as well as foreign CHIs are not exempt from DWT. Refunds may be available under an applicable tax treaty. As of 2009, dividends paid to qualifying foreign PFs resident in the EU, Norway or Iceland are exempt from DWT. Czech policy allows for DWT refunds as of PFs that are residents of the EU/EEA should, therefore, request a refund as of Domestic as well as foreign CIFs are not exempt from DWT. Refunds may be available under an applicable tax treaty. FRANCE Institution CHIs PFs CIFs Refund possibility The French Supreme Court decided in 2009 that DWT on distributions to a foreign CHIs resident in the EU/EEA is a violation of EU law. France amended its legislation in December 2009 in order to comply with EU Law. Refunds claims are in progress. The French Supreme Court decided in 2009 that DWT on distributions to a foreign PF resident in the EU/EEA is a violation of EU law. France amended its legislation in December 2009 in order to comply with EU Law. Refunds claims are in progress. The French Supreme Court and the ECJ will rule out whether French DWT paid to CIFs located in another EU member state complies with the freedom of capital movement. Refunds claims are in progress.

5 Country Austria 1. Dividend Withholding Tax Dividends distributed by Austrian companies are generally subject to 25% withholding tax. 2. Exemptions and Refunds Under Current Law 2.1 General Certain entities being only subject to limited corporate taxation in Austria are exempt from dividend withholding tax. 2.2 Charitable Institutions Domestic Charitable Institutions Charitable institutions having their seat or place of management in Austria are subject to Austrian taxation solely on the income derived from carrying on a business that is not necessary to achieve their charitable purpose. With regard to dividends distributed to them, they are exempt from withholding taxation at source, unless the dividends are allocable to a taxable business in the aforementioned sense Foreign Charitable Institutions Foreign institutions meeting the legal requirements for the qualification as a charitable institution under Austrian law are legally treated as equivalent to Austrian charitable institutions so long as they (i) have their seat or place of management within the territory of the EU, or (ii) serve a charitable purpose predominantly in Austria. An EU-charitable institution is, therefore, entitled to the same tax exemption at source as an Austrian-charitable institution. Consequently, there is no discrimination under Austrian law in this case. 2.3 Pension Funds Pension Funds in the sense of the Austrian Act on Pension Funds (PKG) Similar to charitable institutions, Austrian pension funds are subject to limited tax liability only under certain circumstances. Consequently, no tax has to be withheld at source when dividends are distributed to them by Austrian corporations provided that they qualify for the general tax exemption in the form of limited tax liability.

6 Country Austria Domestic Branches of Foreign Pension Funds in the Sense of the PKG Foreign pension funds established in an EU member state, which are entitled to carry on the business of providing of retirement benefits under the law of their country of residency in accordance with the provisions of the EU Directive 2003/41, can establish a branch office performing such activities in Austria. With respect to dividends received from an Austrian corporation attributable to such a domestic branch, they are exempt from withholding taxation Other Pension Funds Other foreign pension funds, regardless of whether or not they are resident in an EU member state, are not exempt from withholding taxation on dividends of Austrian corporations distributed to them, because none of the exemptions provided by Austrian law applies to them. They can, however, make a tax refund claim to the extent provided by the respective applicable double tax treaty. The non-applicability of the tax relief granted to domestic pension funds / domestic branches may violate EU law. Accordingly, pension funds resident in an EU/EEA member state receiving dividends from a corporation resident in Austria could try to get a refund of withholding tax as domestic branches of such pension funds would do. Refunds could only be requested four years after the dividends were distributed. In the event of negative decisions by the competent fiscal authorities, such pension funds could thereafter appeal such decisions until they reach the highest domestic level of jurisdiction, which is (in such case) the Austrian Administrative Court in order to finally get a decision by the ECJ confirming the violation of EU law. 2.4 Collective Investment Funds Austrian Collective Investment Funds Under Austrian law, collective investment funds do not constitute a taxable entity; they are treated as co-ownerships of their investors. Consequently, the taxation of fund profits generally is on the fund investors. There is no tax exemption available to dividends derived by an investment fund. Hence, the general rate of 25% withholding tax applies to dividends distributed to collective investment funds.

7 Country Austria Foreign Collective Investment Funds As is the case with Austrian investment funds, foreign investment funds are generally non-taxable entities under Austrian law. However, with respect to the withholding of tax on dividends distributed to them by Austrian corporations, it is necessary to distinguish whether or not they are treated as transparent or nontransparent by local law. In case a foreign investment fund is treated as non-transparent, it is entitled to claim withholding tax refund of Austrian withholding tax according to the respective applicable double tax treaty. In case of transparency, however, only the fund investors who fulfill the residence requirements of the respective double tax treaty may claim treaty relief on their own with respect to the Austrian source tax. In this regard, special provisions are set forth in the double tax treaties with Switzerland and France. An investment fund established under Swiss law is entitled to claim relief from source taxation on dividends on behalf of its investors. An investment fund established in France is regardless of whether or not it transparent under local law entitled to claim relief from source taxation in Austria to an extent that the investors in the fund are French residents. In case the fund has investors other than those that are French residents, such relief may only be claimed proportionally. 2.3 Pending Court Cases We are unaware of any relevant pending cases. 2.4 Other Relevant Information Under Austrian law, foreign investment funds are divided into two groups: white funds and black funds. The term white funds refers to foreign funds that have a qualified tax representative (i.e., an Austrian banking institute or certified auditor) in Austria who reports the profits of the fund to the competent financial authorities. In case no such representative exists or no declaration of the yearly income of the respective fund was provided to the financial authorities within a period of four months after the end of the fund s fiscal year, the financial authorities determine such income by way of estimation ( black funds ). Following a judgment by the Austrian Constitutional Court in 2004, in case the representative neglects its reporting duty, any single participant in a black fund is entitled to prove to the authorities the true income of the respective fund. 10

8 Country Austria 3. Exemptions and Refunds Under Previous Law 3.1 Pension Funds / Charitable Institutions Prior to a legal change in 1997, the provision governing the tax liability of charitable institutions did not contain the clause legally equating foreign charitable institutions with domestic charitable institutions for tax purposes. Hence, the provision was only applicable to institutions having their seat, place of management or charitable purpose in Austria. 3.2 Collective Investment Funds See below section 3.3 Court Cases. 3.3 Court Cases In the year 2004 (VfGH , G49/04), the Austrian Constitutional Court declared the provision governing the income derived from foreign black funds in force at that time as unconstitutional. Under that provision, participants in an investment fund were not able to prove their actual income derived from a black investment fund (not having a legal representative in Austria) for themselves, which had the effect that the tax burden levied on profits derived from a black fund was inevitably estimated by the financial authorities. Since such estimation was based on the assumption of a minimum profit of the fund, it was suitable to cause the possible taxation of fictional profits in the case of factual losses. Author: Imke Gerdes, Baker & McKenzie Vienna *** 11