European court ruling opens way for foreign fund claims in France

The European Court of Justice (ECJ) has confirmed, in a case which could eventually benefit investors in foreign investment funds in France, that they are entitled to the same exemptions as domestic funds.

The decision in the joint cases C-338/11 to C-347/11 concerning French withholding taxes (WHT) and foreign investment funds was delivered by the ECJ in May.

It confirms that foreign funds which received dividend payments from French companies and which had been subject to WHT are entitled to the same exemption as French funds.

The Court ruled that the French fiscal regime at issue was discriminatory toward foreign funds. The decision involved taxpayers that were European as well as non-European (US) funds.

It marks a step in a process that could lead to billions of Euros of refunds for investors, increasing “significantly” the likelihood of recovery of WHT by foreign funds in France and other EU member states.

The EU Treaty on the Functioning of the European Union states that “all restrictions on the movement of capital between EU Member States and EU Member States and third countries shall be prohibited”.

However, French tax legislation provides that all dividends distributed to foreign investment funds must be subject to WHT of 30%, which can be reduced in accordance with the bilateral conventions concluded between France and the other countries.

The 30% WHT does not apply to distributions to French investment funds, which benefit from an exemption.

The taxpayers claimed to be in a comparable situation to that of French investment funds and considered therefore that they should benefit from the same tax treatment as French investors.

The Court confirmed this position, and noted that the application of such a tax has the effect of discouraging investment.

According to experts from global tax advisory firm Taxand, “it is particularly interesting to note that the case included two US mutual funds, so the application to non-EU funds has taken a significant step forward”.

The firm adds that the possible distinction between EU and non-EU funds was not formally raised before the Court. However, in its conclusions and judgment, the Court strongly suggests there is no basis to distinguish per se between EU and non-EU funds.

Close Window
View the Magazine

You need to fill all required fields!