ECJ rules against French dividend withholding tax on non-resident funds
Published May 2012
Under French tax rules, a 30% WHT (25% until 31 December 2011) is applicable on French-source dividends paid to non-resident investment funds whereas these dividends are not subject to any tax when paid to French domiciled investment funds.
On 10 May the European Court of Justice (ECJ) ruled that the application by France of withholding tax (WHT) on French-source dividends paid to non-French investment funds was discriminatory and therefore in breach of EU law.
Ten selected “test” cases relating to French-source dividends paid to Belgian, German, Spanish and US investment funds went before the Administrative Lower Court of Montreuil. The Court decided to refer certain aspects of the case to France’s Supreme Administrative Court, which in turn asked the opinion of the ECJ.
The ECJ ruled that the tax treatment of investors does not need to be taken into account to compare the treatment of French and non-French investment funds. Consequently, French and non-French investment funds are in comparable situations and the existing discrimination is in breach of EU law. The ECJ does not rule explicitly in the case of non-EU investment funds but indicated that the French Government does not justify the existing discrimination by reference to its inability to carry out efficient tax audits outside the EU. This means that there is also an opportunity for non-EU funds to submit withholding tax reclaims.
The Administrative Lower Court of Montreuil will now rule on the ten selected test cases and then on the 2,500 other pending claims. It is likely that France will soon amend its tax legislation to align the tax treatment of resident and non-resident investment funds in respect of French-source dividends.
- As a result of the ruling, investment funds will be able to reclaim French dividend WHT paid from 1 January 2009. Investment funds based in the EU and elsewhere that have received French-source dividend income within this timeframe should consider making a reclaim if they have not already done so. Particular attention should be paid to documents supporting reclaims
- Non-resident investment funds which have already filed protective reclaims covering the period from 1 January 2009 should now bring their case to French courts
- Portfolio investors based in the EU and elsewhere should assess the viability of EU claims across all EU markets and protect claims where sound arguments and value exists
Partner, Head of Investment
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