The European Commission Takes France To Court Over Tax Discrimination Against Foreign Pension And Investment Funds

According to articles 119 bis and 187 of the French code général des impôts, the dividends paid to foreign pension and investment funds are subject to a withholding tax of 25% or 15% if there is a bilateral treaty between France and the State where the investor is established. On the other hand the dividends paid to domestic pension and investment funds do not suffer any withholding tax.

The French highest court for administrative matters, the Conseil d'Etat, ruled on February 2009 that the withholding tax regime on dividends paid to European Union pension funds does not comply with the European Union principle of free movement of capital.

In 2010 the French government introduced new provisions according to which the dividends paid to domestic and foreign non-profit organizations, including pension funds, are taxed at the same rate of 15%. However, as the European Commission pointed out, these changes have never been applied in practice due to a lack of administrative implementing rules. The European institution enjoined France in its reasoned opinion of 18 March 2010 to put an end to this discriminatory tax treatment against foreign pension and investment funds. Because of this discrimination, the pension and investment funds established in other States of the European Union and the European Economic Area are disadvantaged compared to their France-based counterparts. On top of that, the French customers enjoy less choice of pension and investment funds.

On 19 May 2011, the European Commission referred France to the European...