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 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.
The European Court of Justice held in its decision Memira Holding AB issued on 19 June 2019 that when assessing whether the losses of a non-resident subsidiary are final within the meaning of its judgment in Marks & Spencer on 13 December 2005 (C‑446/03), the fact that, in the event of a merger, the subsidiary’s Member State of establishment does not does not allow the losses of one company to be transferred to another company liable for corporation tax, is not decisive, unless the parent company can demonstrate that it is impossible for it to deduct those losses through ensuring that - in particular by means of a sale- the losses are fiscally taken into account by a third party for future tax periods.
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 Whilst the judgement specifically related to a legal provision, which is no longer applicable, it represents a departure by the Supreme Tax Court from its previous view on this issue.
On 25 June 2018, the European Court of Justice published its decision of 14 June 2018 concerning the current version of the German anti-treaty /anti-directive shopping legislation.
The European Court of Justice issued a joint judgment in two cases regarding the Dutch group taxation regime under which a parent company is not allowed to deduct interest in respect of a loan taken from a Swedish related company in order to finance its capital contribution to an Italian subsidiary. This is held to be in conflict with the EU freedom of establishment. On the other hand, the refusal to deduct currency losses resulting from fluctuations in the exchange rate is viewed by the court as being not in violation of EU-law.
On 20 December 2017 the European Court of Justice (ECJ) issued its decision on two cases referred to it by the Cologne Tax Court on the compatibility of the anti-abuse rule in Section 50d Income Tax Act (ITA) with EU law. According to Section 50d (3) ITA certain intermediary foreign companies are not entitled to a (full or partial) refund of German withholding tax; without a preceding oral hearing the ECJ took the view that the section was incompatible with both the Parent-Subsidiary Directive and the freedom of establishment. - See update further below!
An ECJ advocate general has suggested the court hold that the Dutch provisions on tax groups are in conflict with the freedom of establishment insofar as they do not allow domestic sub-subsidiaries of a foreign subsidiary or domestic subsidiaries of a foreign parent to join or form a Dutch tax group.
The ECJ has held that immediate taxation of the difference between book and market value of assets moved to another member state goes beyond what is necessary to preserve the legitimate interests of the first state in preserving its tax base if the same move within the country would be tax-free.
The Supreme Tax Court has held that the 5% expense disallowance on tax-free dividends was, up to 2002, a restriction on the freedom of establishment rather than of capital movement and could thus be upheld in respect of a 33% share in a US company.
The ECJ has held that freedoms of establishment and of capital movement preclude national legislation relieving foreign tax by credit as opposed to the exemption of domestic source income where the actual corporation tax paid by domestic companies is generally less than the nominal rate. It has also accepted the freedom of capital movement as relevant, unless the national legislation was aimed at controlling interests.
