The European Courts of Justice (ECJ) ruled that France’s tax regime exempting domestic investment funds from tax on dividend payments was in breach of EU law.
Funds with investments in France, including private equity funds, and EU sovereigns with similar regimes will be considering whether to take action to recover excess taxes that they have been charged in recent years. German, Spanish, Belgian and US investment funds have already filed claims of over €4 billion against French authorities.
Implications of the ruling could extend far past French borders as it may set a precedent for claims in other EU member states that apply a similar regime.
”The ECJ did not block future claims (temporal limitation), which had been requested by the French tax authority,” said tax partner at business advisory firm Deloitte, Kit Dickson, in a statement.
It remains to be seen whether or not France will scrap the legislation altogether or alter the tax so domestic investors do not qualify for an exemption.
Investors argued that France’s tax rule breaches provisions in the Treaty on the Functioning of the European Union that allows for the free movement of capital across member states. French authorities tried to justify the tax on the grounds it prevents cross-border tax avoidance.