EUROPE: European Court of Justice (ECJ) judgment on the case C-30307 Alpha

Thursday June 18 2009

On 18th of June 2009, the ECJ gave its decision in the above case, ruling in favor of the taxpayer that no withholding tax should be levied under Finnish domestic law on dividends paid by a Finnish subsidiary to its Luxembourgian SICAV parent company.

According to Finnish domestic legislation, the dividends paid to a Finnish-resident share company or to an investment fund are not subject to withholding tax. The ECJ held that it follows from this that no withholding tax should be applied to dividends paid to investment funds in other Member States.

The ECJ held that Where a Member State has chosen torelieve resident parent companies of aseries of charges to tax on the profitsdistributed by a resident subsidiary, itmust extend that relief also to non-resident parent companies which are in a comparablesituation.

Further, the ECJ found that the differences between a SICAV and a Finnish share company are not sufficient to create an objective distinction with respect to exemption from withholding tax. Therefore, the different tax treatment in this respect constitutes a restriction of the freedom of establishment in a comparable situation.