Prior to today’s judgment under French corporate tax law, France levied a withholding tax of 15%, or in some cases 25%, on foreign investment funds investing in French companies while French investment funds were exempt.
After today UK pension funds and other investment funds that invest in French companies will no longer be discriminated against compared to French investment funds.
PricewaterhouseCoopers has estimated this case will result in tax refunds of €5bn to UK investment funds and added that this will set a precedent meaning that other EU countries will also be unable to levy a withholding tax on foreign investment funds.
The European Commission has already forced some European countries such as Sweden and Spain to change their rules so that they do not levy discriminatory withholding taxes against foreign investors.
If other EU countries such as Germany, Netherlands and Belgium are also forced to change their corporate tax law, the rebates to UK funds could reach as much as €20bn.
Teresa Owusu-Adjei, tax partner at PwC, said: "The ultimate beneficiaries of this ruling will be UK companies and employees saving for their retirement who will see improved returns on investments in Europe.
"UK pension and investment funds will no longer have to pay more tax on their dividends from investments in French companies than their French equivalents and in a difficult economic climate, funds will welcome any measure which allows them to maximise returns.
"Investment funds that may have paid this withholding tax any time over the last five years should investigate now as to whether they are able to claim rebates."