European Court of Justice Invalidates French Withholding Tax that Applied Only to Dividends Paid to Non-Resident Open-End Investment Funds

One of the fundamental goals of the European Union (EU) is to reduce barriers to economic activity between and among member states.  Barriers can include tax policies designed to advantage certain member states over other member states.  In that vein, the European Court of Justice (ECJ) recently considered whether France’s policy of imposing a 25% withholding tax on dividends payable by French companies to non-resident investment funds while exempting resident investment funds from withholding violates Article 63 of the Treaty on the Functioning of the European Union and thus creates an impermissible barrier to economic activity among member states.  This article summarizes the background and the ECJ’s analysis in this case.  The petitioners in the case are global investment managers that manage funds organized as Undertakings for Collective Investment in Transferable Securities (UCITS).  Thus, the ECJ’s analysis is directly relevant to UCITS managers, and it is also relevant to managers of non-UCITS investment vehicles with any nexus to Europe.

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