Tom O’Shea: Germany’s Tax Credit Rules Successfully Challenged Before the ECJ

Tom O’Shea has published an inspiring comment to the ECJ Judgment of 28 February 2013 on the Beker case (C-168/11): “Germany’s Tax Credit Rules Successfully Challenged Before the ECJ”, Tax Notes Int’l, EmberFebruary 3, 2014, p. 427. As Tom summarises “German rules governing the taxation of foreign dividends were successfully challenged before the European Court of Justice. The taxpayers argued that the German rules failed to grant them their full personal allowances when Germany calculated the tax credit for offsetting the foreign taxes paid on the dividend income. The ECJ determined that the tax rules were incompatible with the free movement of capital” (p. 427).

The Court also “discussed the optional regime provided for under the German legislation, namely, the deduction method instead of the tax credit mechanism. It applied reasoning from its earlier judgments in Gielen (C-440/08) andTest Claimants in the FII Group Litigation (‘‘FII GLO 1’’) (C-446/04) and noted that the fact that a national scheme that restricts the freedoms of movement is optional does not mean that it is compatible with EU” (p. 430).

In Tom’s view, this aspect of the judgment is relevant for exit taxes: “member states that have introduced installment payments to supposedly fix national exit tax rules following National Grid(C-371/10) should note this last point. It seems clear from the Gielen and Bekerjudgments that that option does not ‘‘heal’’ the restriction caused by the national legislation. Consequently, the U. K. rules that provide an exit tax installment payment option over a 10-year period would not seem to comply with EU law, in particular, the freedom of establishment. Other member states with similar option regimes also seem to be acting in breach of their EU law obligations” (p. 430).

Thank you very much for this amazing contribution, dear Tom.

Pedro Herrera

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