EC launches tax consultation
Tuesday February 01 2011 | 01:51 AM

The European Commission has launched a consultation attempting to deal with problems of double taxation paid on investors' cross-border tax dividends.

Described as a "major obstacle to cross-border activity and investment" within the EU, a number of methods are proposed to eliminate the practice, which occurs because of taxpayers being subject to tax in their home jurisdiction as well as the member state they have invested in.

Announced on Friday, measures examined include the abolition of withholding taxes on cross-border dividend payments to portfolio and individual investors, effectively removing juridical double taxation payments.

However, among the problems cited with this method is a loss of tax revenues for source member states, with the tax base shifted.

Another option is to tax net rather than gross taxation in the source member state, with a limit guarding against the "over-taxation" of some operations.

Under this method, the source state would be required to tax a net rather than gross amount of dividend payments, with tax free allowances or deductions against the dividend given the same preferential treatment as a resident in that member state would receive.

The consultation follows on from a Commission communication launched on 20 December 2010, where the Commissioner for taxation Algirdas Šemeta admitted that overturning tax obstacles and promoting fair taxation within the EU would allow citizens to "enjoy all the benefits that the single market has to offer".

Šemeta said: "Taxation has a crucial role to play in strengthening the Internal Market and re-building a strong and sustainable European economy. Good tax policies can promote employment, investment and growth."

Respondents have until 30 April to voice their opinions.