The Advocate General found that when the UK law applies in respect of all shareholdings—regardless of their size—the tax provisions are within the scope of the freedom of movement of capital.
The Advocate General’s opinion is not binding on the CJEU, but is a proposed legal solution made in complete independence. The CJEU judges may now begin their deliberations, with judgment to be given at a later date.
The case is: Test claimants in the FII Group Litigation, C-35/11 (19 July 2012).
In the first referral of this case—FFI Group Litigation, C-446/04 (12 December 2006)—the CJEU addressed issues relating to the UK tax treatment of dividends received from foreign companies.
In the 2006 judgment, the CJEU addressed whether UK provisions violated EU law by exempting dividends received from UK resident companies, but not foreign companies, even when providing a credit for the underlying foreign tax paid. The court held that the UK provision did not breach EU law, as long as that the foreign profits were not subject to a higher rate of tax than domestic dividends.
This matter was referred back to the CJEU for guidance as to how to interpret this exception.
Also, a question posed in the pending referral to the CJEU was whether a UK resident company, receiving dividends from a company registered in a third country on the basis of a shareholding that gave the company receiving the dividend “definitive influence” over the business decisions of the dividend-paying company, was within the scope of the free movement of capital.
The Advocate General proposed that the CJEU either accept that the different treatment of foreign and domestic dividends is acceptable under EU law, or reverse its original findings that the different tax treatment of such dividends is compatible with EU law because this practice is inevitably discriminatory.
Read a July 2012 report [PDF 52 KB] prepared by KPMG’s EU Tax Centre: Advocate General opinion in FII Group Litigation