An EC without withholding taxes? - The role of tax treaties in ECJ:s discrimination-assessment

Abstract: It seems like it can never be said enough times: in order to uphold the objectives of the Internal Market, an equal treatment of resident and non-resident taxpayers have to be granted by the Member States. As for the intricate field of direct taxation, it is still somewhat unclear exactly how this equal treatment looks. Consequently, it is also unclear how far the Member States can stretch the benevolence of the ECJ in finding arguments to protect the mere essence of their existence- their tax base. One way of coping with the increasing pressure on company taxation that Globalisation has brought with it is imposing a withholding tax on dividends and payments for interests and royalty leaving a tax jurisdiction. In practice though, this defence-strategy has actually turned out to be rather offensive. The withholding tax renders for double taxation for non-residents and in the prolonging, it infringes our cherished free movement-rights. In order to set things right, the Member States have relied on a web of DTC, aiming at allocating the right to tax in a way supposedly eliminating double taxation. Even though the promise of elimination is in some cases an empty one, as no state of residency will actually reimburse the foreign tax, which would be necessary to neutralise the double taxation at source of for example dividends, the question put up for this essay is what difference a tax treaty actually makes to the discrimination assessment. Is there any point at all for the Member States to strive towards neutralisation of discrimination through the employment of DTC:s, or does the ECJ refuse to see beyond the impact of the national legislation? The answer is to be found in the recent judgments of the ECJ, namely - Bouanich and Denkavit II. From these judgments I, and many others with me, understand that the ECJ accepts Members States imposing a legislation discriminating non-residents, if this discrimination is soothed by a tax treaty. In other words, the discrimination assessment made by the Court has been extended to cover the gathered effects of all national legislations and tax treaties affecting a taxpayer. To a certain extend does this give the Member States a possibility to maintain taxing at source. Situations that in practice can be neutralised by a DTC are withholding on interest, royalties and dividends to natural persons. In the case of company taxation though, it seems like withholding taxation is living on borrowed time.