Dividend Taxation in Europe: When the ECJ Makes Tax Policy

55 Pages Posted: 3 Sep 2007 Last revised: 17 Dec 2009

See all articles by Alvin C. Warren

Alvin C. Warren

Harvard Law School

Michael J. Graetz

Columbia Law School; Yale Law School

Date Written: August 31, 2007


This article analyzes a complex line of recent decisions in which the European Court of Justice has set forth its vision of a nondiscriminatory system for taxing corporate income distributed as dividends within the European Union. We begin by identifying the principal tax policy issues that arise in constructing a system for taxing cross-border dividends and then review the standard solutions found in national legislation and international tax treaties. Against that background, we examine in detail a dozen of the Court's decisions, half of which have been handed down since 2006. Our conclusion is that the ECJ is applying a standard of nondiscrimination to evaluate national tax laws in a manner totally divorced from the underlying tax policy norms that produced the legislation at issue. Some, but not all, of the decisions seem to require nondiscrimination based on the destination, but not the origin, of corporate investment. The result is a jurisprudence that fails to hold together substantively, functionally, and rhetorically. In many instances, this result follows from largely formalistic distinctions made by the Court, such as whether a withholding tax on dividends should be considered corporate or shareholder taxation.

Keywords: direct taxation, company taxation, corporate taxation, dividends, European Court of Justice, nondiscrimination

JEL Classification: H24, H25

Suggested Citation

Warren, Alvin C. and Graetz, Michael J., Dividend Taxation in Europe: When the ECJ Makes Tax Policy (August 31, 2007). Harvard Public Law Working Paper No. 07-18, Yale Law School, Public Law Working Paper No. 143, Yale Law & Economics Research Paper No. 354, Available at SSRN: https://ssrn.com/abstract=1011155

Alvin C. Warren (Contact Author)

Harvard Law School ( email )

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United States

Michael J. Graetz

Columbia Law School ( email )

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United States

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

HOME PAGE: http://www.law.yale.edu/faculty/MGraetz.htm

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