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EU rules on share repurchases

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26th Jan 2006
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The European Court of Justice has ruled that member states must not discriminate between residents and non residents in their treatment of share repurchases.

The case - known as the Bouanich case - concerns France and Sweden, but the ruling applies to all member states and extends the principle that member states must not discriminate between nationals and citizens of another member state to cover share repurchases as well as dividends.

Margaretha Bouanich is resident in France but held shares in the Swedish company F¶rvaltnings AB Ratos, which repurchased its class B shares in December 1998. Ms Bouanich received '917,000 for her shares.

Although there was no dispute that tax was payable in Sweden - under a agreement between the two countries -Swedish law treats residents and non-residents differently.

The ECJ held this was discriminatory because non-residents had no right to deduct the acquisition cost of the shares whereas residents did. This goes against the EU principle of free movement of capital.

The court said: "While direct taxation falls within the competence of the member states, they must none the less exercise that competence consistently with Community law."

Following reports earlier this month that HMRC was refusing to implement the ECJ judgment in the Manninen case, which involved tax credits on EU dividends, it will be interesting to see what happens next.

For the full judgment of the Bouanich case is click here

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