JUDGMENT COMMENTARY ON CASE C-29499 ATHINAIKI ZYTHOPOIIA AE v ELLINIKO DIMOSIO.docx

European Tax Handbook 1993, International Bureau of Fiscal Documentation, Amsterdam, p. 155
Case C-294/99 (Athinaiki Zythopoiia AE v Elliniko Dimosio), [2001] ECR 1-6797, See for comments on the case Patrick Tardivy and others; "Parent Subsidiary Directive: the Long Reach of Athinaiki; International Tax Review, March 2002, p. 11-18
Case C- 294/99 Athinaiki Zythopoiia AE v Greece [2001] ECR 1-6797. See, generally, Giovanni Rolle, "Is corporate income tax a withholding tax? Some comments on the Athinaiki Zythopoiia case (2003) 12(1) EC Tax Review, 36-42
ATHINAIKI ZITHOPHA, OPINION OF ADVOCATE GENERAL ALBER, delivered on 10 May 2001
ATHINAIKI ZITHOPHA, OPINION OF ADVOCATE GENERAL ALBER, delivered on 10 May 2001
Summary of the Judgment, Athinaiki Zithopiia AE v Elliniko Dimosio (Greek State), (Reference for a preliminary ruling from the Diikitiko Protodikio Athinon), (Taxation of company profits — Parent companies and subsidiaries — Directive 90/435/EEC — Concept of withholding tax)
ATHINAIKI ZITHOPHA, OPINION OF ADVOCATE GENERAL ALBER, delivered on 10 May 2001
https://books.google.gr/books
Case C- 294/99 Athinaiki Zythopoiia, para. 27
Case C-375/98 Epson Europe [2000] ECR 1-4243, paragraph 20 et seq., and the further references cited.
JUDGMENT COMMENTARY ON CASE C-294/99 ATHINAIKI ZYTHOPOIIA AE v ELLINIKO DIMOSIO



International Hellenic University
School of Economics, Business Administration and Legal Studies
LLM in Transnational Commercial Law, ADR and Energy Law





























Date: 09/08/2016
Course: International and EU Tax Law
Student: Mari Atzemian
Lecturer: Dr. Georgios Matsos
This text may be downloaded for personal research purposes only. Any additional reproduction for other purposes, whether in hard copy or electronically, requires the consent of the author. If cited or quoted, reference should be made to the full name of the author, the title, the year, and the publisher.































INTRODUCTION-SUMMARY
Before the amendment of 2003, three transitional exceptions were concluded in the Directive to the abolishment of withholding tax in support of three Member States (Greece, Germany and Portugal), and have already been deleted from Article 5 since 2003. Greece, more specifically, was permitted to levy a withholding tax on outbound dividends provided that it would not charge corporation tax on distributed profits, having in concern that only retained company profits were being taxed at that time, whereas only the shareholder was being taxed for the distributed profits. However, Greece reversed its system on 1992, when started taxing the total profit, either it was distributed or retained, while the recipient was exempted from the dividends. After the accession of the ten new Member States in May 2004, a new exception was applied to the withholding tax exemption, due to the fact that Estonia still applied a system similar to the Greek one, according to which it would not tax corporate profits until they were distributed to the shareholder. In such systems, there is a great need of a high withholding tax on outbound dividends, so that domestic corporate profits are prevented from disappearing tax free across the border.
In the present case, the issue was the national tax levied from the Greek subsidiary (Athinaiki Zythopoiia AE) of the parent company (Amstel International), but not to the account of the shareholder, in the case of the distribution of profits not being or preferentially being taxed under Greek corporation tax. Responding to this argument, the Greek government claimed that, practically, this was not a dividend withholding tax, but a profits tax, which is being applied in order to adjust the same tax burden to all corporate profits at the latest upon distribution, whereas the shareholder is not taxed. The Court, however, was not convinced, due to the fact that losses from previous tax years could not be set against the tax base, as the base of taxation was dividend profit and not corporate.
In Athinaiki Zythopoiia case is mentioned that when a corporation, whose gross income included income subject to reduced taxation or non-taxable income, made a distribution of profits, under the Greek laws those profits were considered to arise equivalently from the non-taxable income or the income which result to be wholly taxable, as if they distributed. The two above mentioned categories of income would be taxable, in case they were distributed to the parent company, and not remained with the subsidiary.

ARGUMENTS OF THE PARTIES

ATHINAIKI ZYTHOPOIIA CLAIM
Athinaiki Zithopiia claimed that the additional tax of the total of GRD 794 291 553 which was levied, corresponding to its nontaxable income and its income subject to special taxation for the 1997 financial year, they unduly paid the sum of GRD 738 384 406. This consisted the 92.17% of the first mentioned amount, due to the distribution to Amstel, while the amount of GRD 80 279 452 corresponds to the 5% of the rebate.
Athinaiki Zithopiia opposed that the specific sum had to be refunded, since Article 106 (2) and (3) of the Greek Law No 2238/1994 enforced a type of taxation, according to which, by the fact of being connected to the distribution of profits, it established a 'withholding tax' and contravened Article 5 (1) of the Directive. Under the Greek laws, the distributed profits were taxed in full even if a part of those profits derived from sources which, in the absence of a distribution, rendered them non-taxable income or income subject to special taxation.
Athinaiki Zithopiia measured that the tax provisions in question institute a forbidden withholding tax. It acquiesces that the Directive is deemed to produce fiscal neutrality, in order to decrease the tax burden on cross-border cooperation and thus to encourage the freedom of establishment and the free movement of capital.
Although, the conception of withholding tax is not clear, Article 5 (1) of the Directive issues a right to Community citizens and is therefore to be read broadly; exceptions, on the other hand, must be interpreted narrowly.

ELLINIKO DIMOSIO (Greek Government) CLAIM
The Greek Government claims that the Directive's one and only purpose is to avoid double taxation. More specifically, the Directive does not provide for any exemption from tax, whereas Article 4 of the Directive assumes taxation of the subsidiary and Article 5 (1) excludes a withholding tax only when there is a profits distribution. According to Article 5 (1) of Directive 90/435 on the common system of taxation "Profits which a subsidiary distributed to its parent company shall, at least where the latter holds a minimum of 25 % of the capital of the subsidiary, be exempt from withholding tax".
The Greek Government claims that the Directive deviates from the principle of territoriality of tax systems, in order to avoid cross-border ownership of corporations from being disadvantaged comparing to domestic ownership. Furthermore, in order to form a taxation system which is neutral from the point of view of competition and that the Directive's purpose is to evade double taxation. Therefore, either distributed profits are taxed in the hands of the parent company, or the parent company can deduct the tax paid by the subsidiary from its own tax.
The Greek Government sustains that the provisions at issue in the main actions do not agree to a withholding tax, but they go according to the taxation of the subsidiary's income. According to Article 106 (2) and (3) of the Income Tax Code under Greek Laws, the method of taxing distributed profits is completely unrelated to withholding tax as forbidden by the Directive. Since the profits are taxed in the title of the subsidiary, it is irrelevant that the tax is paid upon distribution of profits to the parent company.
The Greek Government highlights that the provisions in question do not match to a withholding tax but correspond to the subsidiary's income taxation. It consults that withholding taxes on the distribution of profits are particularly banned by law. There is unconditionally no enquiry of defining the income tax provisions in question as a withholding tax on the distribution of profits.

COURT' s OPERATIVE
The referring court (Doiikitiko Protodikeio Athinon) asked the Court of Justice whether this procedure acceded to a withholding tax for the commitments of the Parent - Subsidiary Directive and the answer to this was affirmative. The payment of the dividends introduced the chargeable event for the taxation, whereas the size of the distribution constituted the reason for the amount of tax. More specifically, Athinaiki Zithopiia in this case is a subsidiary of Amstel, since Amstel holds more than 25% of its capital (Article 3 (1) (a) and (b)), while the latter receives distributes profits from Athinaiki Zithopiia (second indent of Article 1 (1)).
According to Article 7 (1) of the Directive, the above mentioned tax could not be considered as an advance payment or prepayment of corporation tax to the Member State of the subsidiary, referring to a distribution of profits to its parent company. The tax was applied on income and it was levied in the case of a distribution of dividends, to the limit of those being paid. The name or the classification of the tax under national law is fully irrelevant, and seemingly whether the shareholder or the distributing corporation is being taxed also irrelevant. A tax, which corresponds to this kind of description may in certain situations be defined as a non-prohibited (prepayment of) corporation tax under Article 7. However, in order to be such definition accepted, it shall at least be potential to offset corporate losses from previous years against the tax base in the same method as in the regular corporation tax.
Furthermore, this was revealed by the fact that the development in the basis taxable amount consequential to the distribution of profits could not be set against losses, which were estimated during the previous tax years. With a view to avoiding double taxation, Article 5 (1) of the Directive provides for exemption in the State of the subsidiary from withholding tax upon distribution of profits (Joined Cases C-283/94, C-291/94 and C-292/94 Denkavit and Others [1996] ECR I-5063, paragraph 22). In order to define whether the taxation of distributed profits under Greek legislation at issue in the main actions is being applied according to Article 5 (1) of the Directive, it is essential to analyze the provision, as defined above. The Court of Justice stated that "the nature of a tax, duty or charge must be determined by the court, under Community law, according to the objective characteristics by which it is levied, irrespective of its classification under national law". The operative of the Court was that a withholding tax according to Article 5 includes any tax regarding the distribution by a corporation to its shareholder(s) of any benefit to be settled for instance income from shares, and which is interpreted on that basis.
The term "withholding tax" contained in it is not restricted to certain specific types of national taxation. In particular, Article 2 (c) of the Directive counts, for the purpose of classifying the companies in the Member States which are observed as applying the scope of the Directive, the taxes in national level to which those companies are usually subject. On the other hand, it cannot be deduced from this that other taxes having the identical consequence are approved, principally since the closing part of Article 2 mentions expressly "any other tax which may be substituted for any of the above taxes".'
Having regard to all the previous deliberations, the answer to be given to the national court must be that there is a withholding tax, within the meaning of Article 5 (1) of the Directive, where national legislation provides that, in the event of distribution of profits by a subsidiary (a public limited company or equivalent company) to its parent company, in order to determine the taxable profits of the subsidiary its total net profits, including income which has been subject to special taxation entailing extinction of tax liability and non-taxable income, must be reincorporated into the basic taxable amount, when income falling within those two categories would not be taxable on the basis of the national legislation if they remained with the subsidiary and were not distributed to the parent company.


ATHINAIKI ZITHOPHA, OPINION OF ADVOCATE GENERAL ALBER, delivered on 10 May 2001
Case C-294/99 (Athinaiki Zythopoiia AE v Elliniko Dimosio), [2001] ECR 1-6797, See for comments on the case Patrick Tardivy and others; "Parent Subsidiary Directive: the Long Reach of Athinaiki; International Tax Review, March 2002, p. 11-18
Case C- 294/99 Athinaiki Zythopoiia AE v Greece [2001] ECR 1-6797. See, generally, Giovanni Rolle, "Is corporate income tax a withholding tax? Some comments on the Athinaiki Zythopoiia case (2003) 12(1) EC Tax Review, 36-42
Case C- 294/99 Athinaiki Zythopoiia, para. 27
Case C-375/98 Epson Europe [2000] ECR 1-4243, paragraph 20 et seq., and the further references cited.
European Tax Handbook 1993, International Bureau of Fiscal Documentation, Amsterdam, p. 155
https://books.google.gr/books
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1470681112843&uri=CELEX:61999CC0294
http://ec.europa.eu/taxation_customs/taxation/company_tax/parents-subsidiary_directive/index_en.htm
Summary of the Judgment, Athinaiki Zithopiia AE v Elliniko Dimosio (Greek State), (Reference for a preliminary ruling from the Diikitiko Protodikio Athinon), (Taxation of company profits — Parent companies and subsidiaries — Directive 90/435/EEC — Concept of withholding tax)
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