The Case

Articles 56 EC and 58 of the EC Treaty precluded legislation of a member state which, where the minimum threshold for the parent company's shareholdings in the share capital of the subsidiary was not reached, provided for a withholding tax on dividends distributed by a company established in that member state to a company established in another member state, while exempting from that tax the dividends paid to a company liable to corporation tax in the first member state or which had a permanent establishment in that member state which owned the shares in the company making the distribution. A member state might not rely on the existence of a full tax credit granted unilaterally by another member state to a recipient company established in the latter member state in order to escape the obligation to prevent economic double taxation of dividends resulting from the exercise of its power to tax in a situation where the first member state prevented economic double taxation of dividends distributed to companies established in its territory. Where a member state relied on a convention for the avoidance of double taxation concluded with another member state, it was for the national court to establish whether account should be taken, in the main proceedings, of that convention, and, if so, to determine whether it enabled the effects of the restriction on the free movement of capital to be neutralised.