Withholding Taxes on Dividends, Services and Capital: Searching for a comparability éclairé

Author Francisco Cabral Matos
Supervisor Ana Paula Dourado

Table of Contents
List of Abbreviations
Executive Summary
Main Findings
1 Introduction
2 Identifying the different comparison tests
2.1 Starting point: determining comparability
2.2 Withholding tax on dividends
2.3 Withholding tax on services
2.4 Withholding tax on interest
3 Reconciling tests for withholding tax on dividend, service and capital
3.1 In search for legal certainty
3.2 Reconciling the different tests: is it feasible?
3.3 Reconciling the different tests: in practice
4 Conclusions
4.1 Application of a systematic approach
4.2 Selection of the comparability standard
4.3 The role of the ECJ and of the national courts
4.4 Trends for the application of withholding taxes in the future
Bibliography
List of Cases

Executive Summary
The aim of the study is to ascertain the possibility of the European Court of Justice (hereinafter ‘ECJ’ or ‘the Court’) having a single comparability test to serve as a yardstick in future ECJ decisions. As a result, at the outset there are essentially two questions that the author has to address in order to reach a conclusion as to what may be the above mentioned ‘single comparability test’.

To begin with, the author analyses selected case law of the ECJ in order to understand whether the (apparent) multiplicity of approaches regarding the assessment of a breach of European Union (hereinafter ‘EU’) law in the context of the application of withholding taxes on dividends, services and interest payments resulted in a lack of consistency of the reasoning of the Court or else, if the apparent inconsistency is in fact due to irreconcilable differences of the nature of the items of income or of the specific facts and circumstances of the cases.

Within that framework, the proposed analysis focuses on the definition of the comparability standard, that is to say the set of criteria used by the ECJ in order to assess if a non-resident is in a comparable situation to that of a resident taxpayer, and therefore if he should be granted the right of equal treatment, pursuant to the principle of non-discrimination enshrined in the fundamental freedoms.

Secondly, the author attempts to answer the question of whether it is possible to increase the level of consistency of the reasoning of the Court by means of the application of that single comparability test to all types of income. That means that the purported comparability test should be generally valid for any future cases concerning the imposition of a withholding tax brought before the ECJ.

Ii goes without saying that the answer to the second question presupposes that the author considers first the peculiarities of each type of income with relevance for the assessment of a breach of the fundamental freedoms. That is the main purpose of the analysis carried on in subchapters 2.2, 2.3 and 2.4. Nonetheless, the selection of the relevant matters per type of income depends on an analysis of the way in which the ECJ construed the approach towards the multiple cases of potential discrimination based on its interpretation of the fundamental freedoms, that being the scope of subchapter 2.1.

Additionally, as it is clear from the beginning that the author will have to deal with a variety of approaches followed by the ECJ. As a result, the main goal of chapter 2 is to examine the selected cases from a teleological perspective, that is, in search for the rationale behind the line of reasoning of the Court. Thus, instead of a case-by-case analysis, that chapter underpins the issues spotted by the author in the course of the analysis of the Court decisions, with proper reference to the most relevant paragraphs.

Further to that, the author takes into consideration the preliminary findings arising from the analysis conducted in chapter 2 and finally addresses (in the chapter 3) the possibility of reflecting the different approaches taken by the Court into a common comparability test. For that purpose, the author begins by putting forward the main advantages of achieving a common comparability test (subchapter 3.1).

From there, the analysis is divided into two main parts. Firstly, the author identifies the common denominators arising from the selected case law and supported in the legal literature and performs an initial attempt to gather the different positions into a tentative model – the ‘proposed comparability test’ (subchapter 3.2). That is then followed by a practical analysis where the author tests the application of the theoretical model for reconciling the different approaches in light of the peculiarities of each type of income previously identified (subchapter 3.3).