Advocate General: The Bouanich case
A very interesting opinion by Advocate General KOKOTT in the Bouanich case was made available today. The Swedish Administrative Court of Appeal) had requested a preliminary ruling in the case (Case C-265/04) of Margaretha Bouanich against the Skatteverket (Local Tax Board) on the following issues:
The first question was whether Articles 56 EC and 58 EC permit Sweden to tax a payment in respect of a share repurchase, paid out by a limited company in Sweden, in the same way as a dividend, without there being a right to deduct the cost of acquisition of the repurchased share, if the payment is made to a shareholder who is not domiciled or permanently resident in Sweden, whereas a share repurchase payment made by such a limited company to a shareholder domiciled or permanently resident in Sweden is instead taxed as if it were a capital gain, with a right to deduct the cost of acquisition of the repurchased share?
Regarding the first question the AG considered such difference in treatment entails a restriction of a fundamental freedom. The AG considers that Article 56(1) EC and Article 58 EC precludes provisions that in case of share repurchases, a shareholder domiciled or permanently resident in that Member State has the right to deduct the cost of acquisition of the repurchased shares and instead if the shareholder is not domiciled or permanently resident in that Member State, no such right to deduct the cost of acquisition of the repurchased share is made available. Therefore, the second question submitted b the Swedish court should be addressed.
According to the Swedish Court, if the answer to Question 1 is no (and that is the case according to the AG), when the double taxation agreement provides that there is to be a lower rate of taxation than that applied to a share repurchase payment made to a shareholder in Sweden and also permits a deduction corresponding to the nominal value of the repurchased shares, do the articles mentioned in the previous question permit, in those circumstances, a Member State to apply a rule such as that set out above?
Basically, the Swedish court is asking that, since the domestic rate for repurchase of shares is 30% (net for resident and gross for non-residents) is reduced under the treaty to 15%, and since the treaty itself also permits the deduction of the nominal value of the repurchased shares, the result after the application of the treaty may eliminate any discrimination that was identified on the basis of the first question. In fact, the AG appears to go in this direction also. In a very interesting decision on the interrelation of double tax treaties and Community law, the AG considered that the Member State has to determine or guarantee, on a case-by-case analysis, that when a tax treaty is applicable no unequal treatment of domestic and foreign situations remains.
The first question was whether Articles 56 EC and 58 EC permit Sweden to tax a payment in respect of a share repurchase, paid out by a limited company in Sweden, in the same way as a dividend, without there being a right to deduct the cost of acquisition of the repurchased share, if the payment is made to a shareholder who is not domiciled or permanently resident in Sweden, whereas a share repurchase payment made by such a limited company to a shareholder domiciled or permanently resident in Sweden is instead taxed as if it were a capital gain, with a right to deduct the cost of acquisition of the repurchased share?
Regarding the first question the AG considered such difference in treatment entails a restriction of a fundamental freedom. The AG considers that Article 56(1) EC and Article 58 EC precludes provisions that in case of share repurchases, a shareholder domiciled or permanently resident in that Member State has the right to deduct the cost of acquisition of the repurchased shares and instead if the shareholder is not domiciled or permanently resident in that Member State, no such right to deduct the cost of acquisition of the repurchased share is made available. Therefore, the second question submitted b the Swedish court should be addressed.
According to the Swedish Court, if the answer to Question 1 is no (and that is the case according to the AG), when the double taxation agreement provides that there is to be a lower rate of taxation than that applied to a share repurchase payment made to a shareholder in Sweden and also permits a deduction corresponding to the nominal value of the repurchased shares, do the articles mentioned in the previous question permit, in those circumstances, a Member State to apply a rule such as that set out above?
Basically, the Swedish court is asking that, since the domestic rate for repurchase of shares is 30% (net for resident and gross for non-residents) is reduced under the treaty to 15%, and since the treaty itself also permits the deduction of the nominal value of the repurchased shares, the result after the application of the treaty may eliminate any discrimination that was identified on the basis of the first question. In fact, the AG appears to go in this direction also. In a very interesting decision on the interrelation of double tax treaties and Community law, the AG considered that the Member State has to determine or guarantee, on a case-by-case analysis, that when a tax treaty is applicable no unequal treatment of domestic and foreign situations remains.
posted by Talk Tax Blog at 10:31 am
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