For some years now European financial services (FS) institutions, mainly led by the funds industry, have been taking action against certain EU Member States on the grounds that in some cases the imposition of withholding taxes on dividends was illegal under the EU Treaty. This was on the basis that EU Member States under the Treaty are not permitted to treat foreign investors, and in particular EU and European Free Trade Association (EFTA) shareholders, more harshly than equivalent domestic investors.
These cases were being pursued under the "Free Movement of Capital" provisions. Unusually, these provisions in the EU Treaty also granted rights against discrimination to investors in countries outside the EU and EFTA. A recent case that concerns France and both EU and non-EU investors has been decided in favour of the investors and against France. This has potential implications for any foreign investor in EU equity investments and therefore will be of wide interest.
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