Legal Alerts/23 May 2012

Legal Alert – New ECJ Judgment Strengthens the Possibilities to Claim a Refund for Dividend Withholding Tax within EU

On 10 May 2012 European Court of Justice (ECJ) has given a significant judgment (Santander) concerning withholding tax that the State of France has levied for French source dividends paid to non-resident mutual investment funds for their portfolio investments. French legislation has fully exempted comparable French investment funds from similar kind of tax.

The Santander case concerned a combination of ten cases (C-338/11 – C347/11) which all dealt with the conflict between EU law and French legislation concerning the free movement of capital. As plaintiffs in these cases were different UCITS funds from Spain, Germany and Belgium and investments funds under US regulation.

The ECJ regarded that an arrangement where non-resident mutual funds are treated with higher tax burden than resident ones, reduces the willingness of non-resident funds to invest in France and respectively reduces willingness of French investors to buy shares from non-resident mutual funds. Thus the ECJ found that the withholding taxation legislation of France did not comply with the article 63 of Treaty on the Functioning of the European Union (TFEU) and there were no such circumstances that the difference in taxation treatment of resident and non-resident funds could not be justified with the grounds stated in article 65 TFEU. The legislation of France breached the free movement of capital under EU law and the ECJ ruled that the plaintiffs were entitled to a full refund of the French dividend withholding tax.

ECJ did not make difference between EU-residents and non-EU-residents in the judgment and thus for example dividend withholding tax levied from an US-based fund does not comply with EU law if comparable resident funds are fully exempted from withholding tax.
The French Government asked the ECJ to limit the temporal effects of its judgment on the basis that the ruling would have long-term and grave financial consequences. The ECJ did not agree to limit the temporal effect as it confirmed that financial grounds could not justify the limitation in this kind of case.

Opportunities for refund

The judgment gives an opportunity for Finnish and foreign mutual investment funds to claim a refund for the withholding tax that they have paid for dividends received from EU member state provided that comparable funds in that reside in that state are exempted from similar kind of tax. This applies also to non-resident funds that have paid withholding tax to Finland. As a consequence of the judgment both Finnish and foreign mutual investment funds should seriously consider their possibilities to claim for a refund for withholding taxes that they have paid for their dividends within EU.

Administrative court of Helsinki has previously this spring given a decision in which a Swedish investment fund was entitled to a refund for withholding tax that they had paid for dividends received from Finland. The decision complies with the judgment given by the ECJ. Attorneys at law Borenius successfully represented the Swedish fund in the process. In addition Attorneys at law Borenius currently advises several US investment funds in reclaiming withholding tax refund from Finland.

Share on LinkedInTweet about this on TwitterShare on Facebook


Additional information

Janne Juusela



Einari Karhu