GERMANY - New CJEU referral : Canadian pension fund vs German dividend withholding tax regime

The Fiscal Court of Munich recently referred preliminary questions to the CJEU regarding the compatibility of the German regime of dividend Withholding Tax (WHT) imposed on a Canadian pension fund with the free movement of capital provided in Article 63 TFEU, Article 64 TFEU and Article 65 TFEU. The case law is C-641/17. A Canadian pension fund, in the legal form of a Common Law Trust under Canadian law, indirectly owns shares of German public limited companies. The fund received dividends from these German companies from 2007 to 2010. The dividends were subject to withholding tax (WHT) of 25%. Pursuant to the Canadian-German Double Tax Treaty, 10% of the WHT was refunded to the fund. It thus suffered a final WHT of 15%. The fund applied for a refund of the remaining 15% but the claim was dismissed by the German tax authorities, as German law does not provide for such reimbursement. The Fiscal Court of Munich considers the Canadian pension fund to be comparable to a pension fund under German law (Pensionsfonds). Moreover, the Court is of the view that there is a direct link between the dividend income received by a pension fund and its technical reserves which reflect its obligation to pay out the largest part of the income to its insured pensioners. The Court does not see any reason why the discrimination under German law could be justified. However, it assumes that Germany’s taxation of the Canadian pension fund, which is a resident of a third country, could be compatible with the free movement of capital pursuant to Article 64 TFEU (standstill clause). In this context it raises these preliminary questions :

• Does the free movement of capital contained in Article 63 (1) TFEU in conjunction with Article 65 TFEU preclude the rule of a Member State, according to which a non-resident institution, whose structure is similar to that of a German pension fund, is not eligible for a reduction of the WHT on dividends, while domestic pension funds have the rights to reduce their taxable profit by deducting their provisions in order to meet their pension payment obligations ?
• If the answer to the question 1 is in the affirmative : is the restriction on the free movement of capital to paragraph 32 (1) (2) of the KStG (German law on corporation tax) in accordance with Article 63 TFEU in conjunction with Article 64 (1) TFEU permissible towards third countries because it is linked to the provision of financial services ?

  Recent cases law in reference : Commission/Germany C-284/09 ; Pensioenfonds Metaal and Techniek C-252/14 ; Commission/Finland C-342/10 ; Prunus and Polonium C-384/09.