Manninen decision
The Manninen decision is a judgment of the European Court of Justice (ECJ) , which the corporation - credit systems in the European Union invalidated.
Facts and subject of dispute
Petri Mikael Manninen , a Finnish citizen, had unlimited tax liability in Finland and owned shares in a Swedish company. This distributed profits in the form of dividends .
The corporate income tax rate for corporations resident in Finland is 29%, which is the same as the tax rate on capital income, including dividends, which are subject to a tax rate of 29% in Finland for natural persons. To avoid double taxation of dividends, Finnish law granted shareholders a tax credit equal to 29/71 of the dividend paid, bringing the total tax burden on profits to 29%.
However, this tax credit is only granted to Finnish resident taxpayers who receive dividends from a company resident in Finland. Manninen was denied the tax credit applied for on the Swedish company's dividends, and he went to court. The court stayed the proceedings and appealed to the ECJ .
The decision of the ECJ
With its judgment of September 7, 2004 (Case C-319/02), Petri Mikael Manninen , the ECJ ruled that it violates the fundamental freedoms of the EC Treaty , namely the free movement of capital , if dividends paid by a Finnish company distributes a tax credit to its Finnish shareholders, but not for dividends received by Finnish shareholders from companies located in other member countries. Such a regulation tends to discourage Finnish shareholders from investing their capital in companies from other Member States (margin no. 22). Likewise, such a regulation has a restrictive effect from the point of view of the companies in the other Member States, as they tend to be discouraged from raising capital in Finland. (Rz. 23)
In its verdict, the ECJ rejected various attempts at justification by the governments that had joined the negotiation .
He thus obliged Finland, a shareholder with unlimited tax liability in Finland who receives dividends from companies in another Member State (here: Sweden), to grant a tax credit in the amount of the tax actually paid in the other Member State (i.e. not always 29/71). (Rz. 54)
Effects of the judgment
Overall, the unanimous opinion is that corporation tax credit procedures, as they existed in Germany from 1977 to 2000, are therefore no longer fiscally acceptable within Europe.
Finland
In anticipation of the expected verdict, Finland has reformed its corporate tax system and adjusted dividend taxation. The tax rates were lowered slightly, but the tax credit system was abandoned.
Germany
In Germany, the change from the crediting procedure to the half-income procedure was implemented as early as 2000 with the Tax Reduction Act , which in retrospect, despite the harsh criticism voiced at the time, is largely regarded as a happy decision.
Since the German credit system was sufficiently similar to the Finnish one, the Cologne Finance Court submitted this question to the European Court of Justice for final clarification on June 24, 2004. The ECJ ruled on March 6, 2007 in the Meilicke case C-292/04 and also considered the German regulation to be contrary to European law.
Now the tax authorities are threatened with considerable loss of income, since all assessments that have not yet become final are threatened with a claim to foreign corporation tax credit. It is even being discussed whether this is also possible retrospectively up to 1990.
Web links
ECJ Case C-292/04 (press release on Meilicke) (PDF; 117 kB)
