In our February 2009 Pensions update, we reported on the ruling from the Dutch tax authorities in relation to the Strathclyde Pension Fund which stated that there should have been no “withholding tax” on dividend payments to tax exempt bodies (such as UK pension funds) located within the European Union but outside the Netherlands.
This ruling followed the ECJ’s decision in Amurta SGPS v Inspecteur van de Belastingdienst C-379/05, as reported in our December 2007 Pensions update, which held that it is discriminatory to impose inconsistent withholding tax rules on company dividends dependent on the Member State in which the recipient company is based.
In a similar case, the European Commission reported last month that it had sent “reasoned opinions” to Finland and Denmark over their tax treatment of dividends paid to foreign pension funds. Essentially, foreign funds pay withholding tax on dividends based on their gross income but domestic funds are entitled to deduct certain costs and pay tax on their net income. The Commission believes these differences are “arbitrary discrimination”. If Finland and Denmark do not respond “satisfactorily” to the opinions within two months, the matter may be referred to the ECJ.
Comment: these cases are relevant to UK pension funds as they may be due a tax rebate if they have been subject to withholding tax on dividends from a non-UK European Economic Area-based company where a domestic investor would not have been. They follow a series of cases where withholding tax levied on dividends paid cross-border to various forms of investment funds has been held to be contrary to EU law. Scheme trustees and administrators may wish to check with their investment managers what action, if any, is being taken to pursue any claim.