This is a case taken under the EC Free Movement of Capital rules. Many tax cases are taken under this head, but this case is somewhat distinguished as it challenges the terms of a Double Taxation Agreement.

In this respect, the facts are somewhat incidental. Mr Damseaux, resident in Belgium, was paid dividends from a French resident company. The dividends, under the terms of the France-Belgium DTA, were subject to French withholding tax at 15%. He received no credit for this French withholding tax in Belgium. In effect therefore, the French source dividends were taxed at a higher rate than they would have been had the dividends been from a Belgian company. The dilemma of whether or not these DTA arrangements were permissible under EU law was referred to the ECJ by the Belgian Court charged with hearing Mr Damseaux's objections.

The ECJ took the somewhat unusual step of deciding, in the first instance, that they had been asked the wrong question by the Belgian Court. The answer the Belgian Court required concerned not so much the application of the withholding tax arrangements under the France-Belgium DTA. The real issue was whether the Freedom of Movement of Capital rules under Article 56 of the EC treaty preclude a bilateral tax convention which allows the discrimination suggested by Mr Damseaux.

In the course of the judgment, the Court made some interesting observations about its sphere of competence, and the extent of the scope of EU law, which are worth setting out in full:

“The Court does not have jurisdiction, under Article 234 EC, to rule on a possible infringement, by a contracting Member State, of provisions of bilateral conventions entered into by the Member States designed to eliminate or to mitigate the negative effects of the coexistence of national tax regimes Nor may the Court examine the relationship between a national measure and the provisions of a double taxation convention, such as the bilateral tax convention at issue in the main proceedings, since that question does not fall within the scope of the interpretation of Community law.”

“It is not in dispute that Community law, in its current state and in a situation such as that at issue in the main proceedings, does not lay down any general criteria for the attribution of areas of competence between the Member States in relation to the elimination of double taxation within the Community”

“The fact that both the Member State in which the dividends are paid and the Member State in which the shareholder resides are liable to tax those dividends does not mean that the Member State of residence is obliged, under Community law, to prevent the dis advantages which could arise from the exercise of competence thus attributed by the two Member States.”

In other words, the ECJ isn't there to unpick or interpret Double Taxation Agreements. And if two Member States have agreed their respective taxing powers via a Double Taxation Agreement, and as long as the agreement isn't discriminatory, the EU will have no reason to challenge such arrangements. In fact, in the current case, had Belgium applied its tax rules to ensure double taxation didn't arise, Belgium would in effect be giving priority of treatment to French source dividends.

The case will go back to the Belgian judge in Liege, and Mr Damseaux will likely have to pay his tax without further demur.

The full judgement is reproduced below.