The purpose of the ECJ ruling on tax cases is to provide clarity for member
states on how to ensure their tax systems comply with the EC Treaty so that
complex matters can be adjudicated in a clear way.
The franked investment income (FII) case in December hardly clarified things,
however. Instead of laying down a coherent principle for advisers and revenue
authorities to follow, it opted to draw a distinction between equivalent
treatment (favouring the taxpayers) and ‘parity’.
But it’s anyone’s guess what parity is supposed to mean, and who knows
whether similar cases won’t end up back before the ECJ again after what one
adviser termed its ‘Delphic’ ruling on the FIIcase?
The court had a simple and lucid opinion from the advocate general to follow
dividends from foreign subsidiaries should not be taxed differently from
dividends paid between UK companies. The court decided not to follow it.
Instead, it indulged in an intricate hair-splitting exercise that has made
matters more opaque than they were before.
The end result is that nationally sourced dividends can stay exempt, and
foreign dividends can continue to be subject to a tax credit system, as long as
the end economic impact is the same.
Figuring out whether the economic impact is the same is complicated, and this
question has been passed back to the UK courts. Cue more legal wrangling. Isn’t
it time the ECJ cut the complexity and started taking responsibility again?
Nicholas Neveling is a reporter on Accountancy Age.
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