In its decision of 3 June 2025 – VIII R 21/22, the Supreme Tax Court referred various questions to the Court of Justice of the European Union (ECJ) for a preliminary ruling in connection with the dividend withholding tax paid to third-country companies.
In a most recent judgment, the Supreme Tax Court decided that the restriction for exemption from taxation of the retained income of foreign foundations with their management or registered office in a member state of the European Union or a contracting state of the EEA to be in conflict with the EU free movement of capital.
In a most recent decision, the Regional Tax Court of Düsseldorf dismissed the claim of a Japanese corporation for a refund of withholding tax on the grounds that the case was within the scope of the EU principles for freedom of establishment which the plaintiff, being a resident of a third country, could not invoke.
Following a ruling by the European Court of Justice (ECJ) earlier this year, the Supreme Tax Court held in its decision of 31 October 2019 that the incorporation into the tax base of controlled company income from invested capital from an intermediary company domiciled in Switzerland in the financial year 2006 may restrict the free movement of capital, but it is justified through compelling reasons of public interest and does not therefore contravene EU law.
The tax authorities of the Federal States have issued a joint response to the ECJ’s decision in EV (C-685/16) on 20 September 2018, in which the Court decided that the “activity requirement,” contained in the rule providing for a trade tax exemption on distributions from third countries contravened EU law.
In its judgement of 24 July 2018, published on 30 January 2019, the Supreme Tax Court held that with regard to national provisions with a requirement of a minimum shareholding of at least 10%, the principle of the free movement of capital is not blocked by the principle of freedom of establishment. Whilst the judgement specifically related to a legal provision, which is no longer applicable, it represents a departure by the Supreme Tax Court from its previous view on this issue.
The European Court of Justice (ECJ) decided that the law requiring a French national resident in a third country to make social security contributions on income arising from assets was justifiable.
An ECJ advocate general has suggested that a tax treaty can justify a hindrance on the free movement of capital from granting a tax credit privilege to recipients of a dividend from a third country but not to those with dividends from a member state.
The ECJ has held that a German provision for the taxation of deemed income from foreign investment funds outside the EU that do not comply with the German disclosure requirements falls under the “grandfather” clause of Art 64 of the TFEU allowing restrictions on the free movement of capital to and from third countries on December 31, 1993 to continue in force.
The ECJ has held that the denial of relief in a member state of residence for a loss made on the sale of property in another member state is not an unjustified restriction on the free movement of capital.
An ECJ advocate general has suggested the court recognise a restriction on the free movement of capital from the differing treatment of the corporation tax underlying domestic and foreign dividends, but hold it to be justified in the interests of maintaining the internationally agreed balance of taxing rights.
The Supreme Tax Court has laid a preliminary question before the ECJ on whether the provision setting the taxable income derived from an investment in a non-compliant foreign fund at 90% of the increase in the unit redemption price during the year is to be disapplied as a restriction on the free movement of capital going beyond what is necessary to combat tax evasion.
An ECJ advocate general has suggested the court deny an individual freedom of capital movement on the grounds that the more appropriate freedom is that of establishment, which, however, is not relevant in the circumstances.
In a case brought by the Commission, the ECJ has held that Germany’s withholding tax on dividends to other corporations is in breach of community law in that it discourages persons from other member states from investing in Germany.
The Supreme Tax Court has referred to the ECJ on a refusal to grant the same inheritance tax allowance on a holding in Canada that would have been available on a domestic investment.
An ECJ advocate general has asked the court to rule that a German deduction for personal expenses be extended to non-residents if they would not have had the income without the obligation.
