Complex ruling on foreign dividend taxes

News Article - 13 December 2006
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The European court of justice (ECJ) has ruled that the UK should not be able to charge higher tax rates for foreign dividends but that some measures used to achieve an increased rate were acceptable.

Issuing the ruling as part of the franked investment income case in which the GLO challenged the tax treatment of dividends in the UK, the ECJ's ruling was described as a mixed bag by experts.

The court said that some parity was achievable by a credit or exemption system.

Jonathan Bridges of audit firm KPMG's European Union law group told Accountancy Age that the ruling was "disappointing" in that it did not go far enough in ensuring the same rules applied to both UK and foreign-sourced dividends.

"Achieving equanimity of treatment via a credit system may, on the face of it, sound reasonable but it is not straightforward," he said.

Prior to the ruling, it was anticipated that the challenge could amount in a £7 billion bill for the government and changes to the UK's tax system, the website reports.

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