ECJ restricts capital duty levies

European Union (EU) member states should not levy capital duties on
subsidiaries, when a parent company boosts the capital of a sub-subsidiary, the
European Court of Justice (ECJ) has ruled.

It said that although such financial transfers might boost the share value of
a subsidiary, this is merely ‘an automatic and incidental economic
repercussion’, not a ‘second separate contribution which could… be subject to

The court was ruling in a case involving payments from Britain’s Senior
Engineering Investments Ltd to German sub-subsidiary Senior Engineering Trading
Gesellschaft für Autozulieferteile mbH.

The parent company was challenging the Netherlands government’s levying of
capital duty on the Dutch subsidiary Senior Engineering Investments BV, even
though it did not directly receive new money.

The court said the Netherlands’ 1970 law on the taxation of legal
transactions broke EU directive 69/335 on the free movement of capital by
allowing this taxation. The decision is a legal precedent in all EU member

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