On May 10th the European Court of Justice (ECJ) delivered a favourable ruling in respect of investment funds on French withholding tax. The case against France was brought by German, Spanish Belgian and US investors. They argued that the French rules which taxed dividends paid on French equities to non resident investment funds but exempted when paid to French funds was contrary to EU law. Funds invested in French equities should now consider reclaiming French withholding tax paid from 1 January 2009. This could have implications for other markets in the EU and investors should consider making protective claims
The ECJ ruling confirms:
- The French rules are a restriction on free movement of capital between EU member states and third countries; and
- There is no justification for France applying such discrimination in either an EU or third country context;
Informed sources comment that this will be a massive hit to the French economy as claims for refunds of French withholding tax is estimated to be in excess of euros 4 billion.