Tax Ruling Signals Huge Rebate for Investors

<em>European courts rule withholding tax on non-domestic investment in French equities should be removed and reimbursed.</em>
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(May 10, 2012)  —  Funds holding French equities are in line for tax rebates worth billions of euros after a ruling by the European Courts of Justice that could spell further refunds to investors in other countries in the region.

Today, the courts upheld protests from 10 UCITS funds based outside France who claimed that foreign investors in French listed companies were subject to a withholding tax of up to 25% on dividends, whereas domestic investors were not.

The move is the latest to resolve tax issues for investors in European Union member states. The European Commission has already forced Sweden and Spain to change their regimes, which were similar to that operating in France, and commentators predict this will be the next step for French regulators to take.

Teresa Owusu-Adjei, Tax Partner at auditor and accountants PwC, said the ruling was a boon to pension funds and their members who should see better investment returns from their holdings in Europe.

Just in the United Kingdom, PwC estimated investors could be in line for rebates up to a total of €5 billion.

Owusu-Adjei  said: “[Non-domestic] 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.”

Germany, the Netherlands, and Belgium still operate tax systems that discriminate against non-domestic investors – PwC said today’s ruling set a precedent and these countries may soon be forced to change too.

Owusu-Adjei said: “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 €20 billion so it is in funds’ interests to act now.”