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Tax credits on overseas dividends?

On 6 March 2007 the European Court of Justice handed down its judgment in the Mielicke case. The Court decided that it was contrary to the free movement of capital for the German government to deny a tax credit on dividends from companies outside Germany. This echoes the decision in the Manninen case a few years ago which dealt with the tax system in Finland. Although both Germany and Finland have since changed their rules the systems at the time were similar to the UK system of taxing dividends.

Currently the recipient of a UK dividend is entitled to a notional tax credit to set against the tax due on that dividend. Recipients of dividends from non-UK companies are entitled to no such credit.

Significantly, the court in the Meilicke case has restricted the use of temporal limitation powers which open the door for other similar cases. As yet there has not been a case by a UK taxpayer but it must just be a matter of when rather than if.

HM Revenue & Customs have yet to comment on the case but they remained silent on the Manninen case. The CIOT even went as far as making a request under the Freedom of Information Act to find out the Revenue’s policy on Manninen.

 

 

Date: 7th March, 2007
Author: Lisa Spearman

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