Non-Discrimination and the Taxation of Cross-Border Dividends

At a domestic level, dividend tax systems are usually designed to relieve the economic double taxation of corporate profits and are related to the personal taxation of savings income. Increasingly over the last 40 years, however, international considerations have intruded upon domestic tax policy. Source country taxation of corporate profits and residence country personal taxation of dividends have limited domestic tax policy options and decoupled corporate and personal tax systems. This article examines the issues for dividend tax policy in an international setting and the role of bilateral tax treaties in addressing those issues. The article explains how, within the European Union, the freedoms guaranteed by the EU Treaties have dictated Member States’ tax policy options. It concludes that general non-discrimination principles, in contrast to specific treaty provisions, have a limited role to play in resolving the competing claims of source and residence countries to tax the return on corporate activity.