Global FS tax newsflash: France issues guidance for foreign investment funds to reclaim withholding taxes

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On May 10, 2012, the European Court of Justice (ECJ) rendered another landmark judgment related to discriminatory French tax withheld on dividend payments made to foreign investment funds.

Santander case

The Santander case involved 10 investment funds resident in Belgium, Germany, Spain and the United States that:

  • had received dividends from their French equity portfolios; and
  • had been subject to French dividend withholding tax (WHT).

These funds disputed the French tax rules on the grounds that the levy of WHT breached the free movement of capital guaranteed by European Union (EU) law.

The ECJ ruled that levying French WHT on dividend payments made to foreign investment funds breached the free movement of capital because WHT was not levied on French investment funds.

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