The European Court of Justice (ECJ) has ruled that foreign investment funds that invest in French companies should not be liable to pay a discriminatory withholding tax on dividends.
Prior to today’s judgment, under French corporate tax law, France levied a withholding tax of 15%, or in some cases 25%, on foreign investment funds investing in French companies while French investment funds were exempt. After today, UK pension funds and other investment funds that invest in French companies will no longer be discriminated against compared to French investment funds. The European Commission (EC) has already forced some European countries such as Sweden and Spain to change their rules so that they do not levy discriminatory withholding taxes against foreign investors and France will now be expected to do the same.
PwC estimates that this case will result in tax refunds to UK investment funds of up to €5bn.
According to PwC, this case will set a precedent, meaning that other EU countries, such as Germany, Netherlands and Belgium, that levy a withholding tax on foreign investment funds, are unlikely to be able to continue to do so.
Teresa Owusu-Adjei, tax partner at PwC, said:
“The ultimate beneficiaries of this ruling against discrimination will be UK companies and employees saving for their retirement who will see improved returns on investments in Europe.”
“UK pension and investment funds will no longer have to pay more tax on their dividends from investments in French companies than their French equivalents and in a difficult economic climate, funds will welcome any measure which allows them to maximise returns.
“Investment funds that may have paid this withholding tax any time over the last five years should investigate now as to whether they are able to claim rebates. Europe-wide these claims could amount to as much as €20bn so it is in funds’ interests to act now.”
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