A WITHHOLDING TAX RULING is to be handed down from the European Court of Justice (ECJ) and could lead to investment funds making similar claims against countries across Europe.
The ruling concerns the French withholding tax regime, and according to France could see a €4.2bn rebate paid out to thousands of claimants, represented by nine claimants is bringing the case.
Similar cases being made against several EU member states by portfolio investors could reach €20bn, analysts said.
Various EU states – including France, where the rate is set at 15% – enforce a withholding tax on dividend payments to foreign investment funds, while similar domestic investors are exempt.
EU and US-based institutional investors argue that such rules contravene EU law and amount to discrimination – notably of the free movement of capital provisions of the Treaty on the Functioning of the European Union (TFEU).
The TFEU states there must be no restriction on the movement of wealth between member states, and between member states and third party countries.
Kit Dickson, tax partner at Deloitte, said that while the decision by the ECJ on France will be watched closely by tax authorities across the EU and portfolio investors globally alike, the UK exchequer will not be affected as it does not levy a withholding tax on dividends.
He added: “Given the general principles can apply to various types of portfolio investors in the EU and elsewhere the total value of claims by European and non-European investors across the EU could be as high as €20bn.
“The questions facing the ECJ in this case are whether foreign investment funds are sufficiently comparable to French investment funds so as to be treated as tax-exempt and whether non-EEA funds should be entitled to the same benefit and if so, is there any justification for the application of a higher tax burden by the French authorities. Given the potential value of claims, the French tax authorities have also requested that the ECJ consider blocking further claims by applying a temporal limitation.”
The nine claimants in the case are Santander, Cartera Mobiliaria, Alltri Inka, DBI-Fonds, SICAV KBC Select Immo, SGSS Deutschland Kapitalanlagegesellschaft, International Values Series of the DFA Investment Trust, Continental Small Series of the DFA Investment Trust, SICAV GA Fund B and AMB Generali Aktien Euroland.
The ruling is expected on 10 May.
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