The ECJ has held that it is legitimate in principle for a Member State to refuse to grant a tax advantage if it proves impossible to obtain relevant information from a third country.

In summary, the ECJ judgement which delivered on 18 December, considered the question, was it contrary to the provisions on free movement of capital between Member States and third countries to tax A in respect of dividends distributed by X because X is not established in a State within the EEA or in a State with which the Kingdom of Sweden has concluded a taxation convention that contains a provision on exchange of information?

The Court ruled that the freedom of capital should be interpreted as not precluding the legislation of a Member State which provides that exemption from income tax in respect of dividends distributed in the form of shares in a subsidiary may be granted only if the company making the distribution is established in a State within the EEA or a State with which a taxation convention providing for the exchange of information has been concluded by the Member State imposing the tax, where that exemption is subject to conditions compliance with which can be verified by the competent authorities of that Member State only by obtaining information from the State of establishment of the distributing company.

A copy of the ECJ ruling is available at http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Rechercher&alldocs=alldocs&docj=docj&docop=docop&docor=docor&docjo=docjo&numaff=C-101/05&datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100.