Non-resident Funds Win ECJ Case Against Discriminatory French Withholding Tax


German, Spanish, US and Belgian investment funds have won a judgement over French withholding taxes from the European Court of Justice (ECJ), which has been hailed as good news for institutional investors, savers as well as other EU and non-EU funds.

The ECJ has ruled that foreign investment funds that invest in French companies should not be liable to pay a discriminatory withholding tax on dividends.

This ruling is an important win for investment funds based in the EU and elsewhere. The expected cost of the judgment to the French tax authorities is in excess of USD 4 billion.

The European Commission (EC) has already obligated 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. The ECJ ruling confirms:

The French rules are a restriction on the free movement of capital between EU member states and between member states and third countries. There is no justification for France applying such discrimination in either an EU or third country...

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