The European Commission has stepped up legal proceedings against Austria and Germany, by formally requesting that they amend their tax laws to remove the discrimination between dividends paid to foreign and domestic companies. Austria and Germany now have eight weeks to reform their tax rules, whereby dividends paid to resident shareholders in Germany and Austria are generally exempt from tax, whereas outbound dividends are subject to withholding taxes ranging from 5 to 25 per cent. Should their governments fail to give a satisfactory response, the Commission may refer the matter to the European Court of Justice. “Member states cannot tax dividends paid to shareholders resident elsewhere in the EU more heavily than dividends paid to shareholders resident in their own Member State,” said EU Taxation and Customs Commissioner Laszlo Kovacs. The Commission has also sent letters of notice, the first step in the EU's legal infringement procedure, to Italy and Finland which tax dividends paid to foreign pension funds more heavily than dividends paid to domestic pension funds. In May, the Commission made similar requests to the Czech Republic, Denmark, Spain, Lithuania, the Netherlands, Poland, Portugal, Slovenia and Sweden. It said it is “still examining the situation in other Member States”.