The European Court of Justice has opened the way for investment funds based outside the EU to reclaim € billions in withholding tax levied by EU governments in a landmark decision today. The decision follows a number of cases where the European Court has ruled that funds from one EU member state can claim back withholding tax levied in another member state. While the Court has previously implied this principle holds where the fund claiming is from a non-EU member state, this is the first time the Court has been asked to give a decisive ruling on the matter.
According to KPMG, claims have already been submitted for around €3 billion and today’s decision is likely to trigger further claims for several € billion more from investment funds outside the EU, primarily based in the USA and Canada.
Chris Morgan, head of tax policy at KPMG in the UK, commented: “This is a seismic decision which opens the gates for € billions of withholding tax levied by European Union member state governments to be returned to investment funds based outside the EU. We estimate around €3 billion of claims have already been made and today’s news is likely to prompt more investment funds to submit claims which, in our view, are likely to be several € billion more.”
The issue at the heart of today’s decision is, inter alia, the question of whether EU law precludes tax legislation under which dividends paid by companies established in one member state to an investment fund established in a non-member state cannot qualify for a tax exemption that applies in a domestic situation (Poland in this specific case). Details of the case are available in the European Court’s press release (PDF 117 KB) .
Chris Morgan concluded: “The key point is that provided a double tax treaty with an exchange of information clause exists between the Investment fund’s state of residence and the relevant EU country, there can be no justification for discriminatory tax rules being applied. Investment funds that have withholding taxes levied on them by EU fiscal authorities may well find that today’s decision means that they can claim a refund. They will need specialist advice to submit a claim however as the process is complicated.”
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