5/1/2023 0 Comments Fokus bank claim![]() ![]() A restriction of the free movement of capital may be prohibited if an EU member state treats non-residents less favorable than residents. To them, the 15% German withholding tax over gross German sourced dividend income is a final levy.Īrticle 63 of the EU Treaty prohibits any and all restrictions of the free movement of capital between EU member states, as well as between an EU member state and “third countries” (non-EU member states, such as Canada). As a result, they are not able to deduct the amounts reserved to meet their pension payment obligations, nor are they able to deduct any other expenses relating to the income from capital. Non-resident pension funds like College Pension Plan that only have German sourced portfolio investment income are not liable to tax in Germany, and therefore not subject to the tax assessment and set-off procedure. As German pension funds reserve all or almost all of their annual income from capital for (future) pension payment obligations, generally speaking the total German tax liability on income from capital is zero, or close to zero. However, they are able to reduce their taxable profit in a tax assessment procedure by deducting the amounts reserved to meet their pension payment obligations, and to neutralize the tax on income from capital through a set-off, and also receive a refund in the event that the amount of corporation tax payable is less than the amount set-off. ![]() ![]() Under German domestic tax law, German pension funds are subject to tax on their portfolio investment income. The Munich Fiscal Court referred to the European Court of Justice and requested two “prejudicial questions” (interpretative questions) of EU law to be answered.Īfter the ECJ’s judgment, which is expected to be rendered by the end of 2019, it will be up to the Munich Fiscal Court to render a final decision, taking into account the (binding) answers given by the ECJ in its judgment. As the Canadian – German tax treaty allows Germany to tax German sourced portfolio dividends at a rate of 15%, and did not (and does not) provide further relief in the form of a refund provision, the requests were based on the position that the German withholding tax is a restriction of the free movement of capital that is prohibited by article 63 of the EU Treaty.Īfter an (implicit) rejection of the requests by the German tax administration, College Pension Plan appealed before the Munich Fiscal Court. On 23 December 2011, College Pension Plan, a registered Canadian pension plan that is tax exempt in Canada, submitted requests for refund of German withholding tax that was withheld and paid at a rate of 15% from the gross dividend income it derived from its German sourced portfolio equity investments. To jump straight to the ECJ’s decision, click here. In this newsletter we discuss the case facts, legal context, legal questions referred to the ECJ, the Attorney General’s Opinion, and the ECJ’s decision. While the Member State’s court which referred the case to the ECJ renders the final decision, it is bound by the ruling from the ECJ with respect to the questions of EU law. The ECJ is the highest court of law in the European Union. On November 13th, 2019, the European Court of Justice (“ECJ”) published its decision in the “College Pension Plan” case (C-641/17). ![]()
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