Governments prepare to refund unlawful withholding taxes

Last week the Norwegian government conceded it had to repay a Luxembourg investment trust tens of millions of Euros that it had unlawfully deducted from their dividends.

According to accountants PricewaterhouseCoopers, the case signals a flood of tax refunds due to investment firms from European governments –  especially France, Germany, Italy, Spain and Belgium. These governments have for years been taxing dividends paid to non-resident investment funds while exempting domestic investment funds – an illegal practice under European competition law.

The practice was declared unlawful in June last year, when the European Court of Justice (ECJ) found against the Finnish Government in the case of Aberdeen Property Fininvest Alpha Oy.

The ECJ proceedings were however only a step in actions pending before national courts. The Norway case, brought by a Luxembourg SICAV (Societe d’Investissement A Capital Variable, a type of  open-ended collective investment trust) is one of the first such actions to be completed, and sets a precedent for other claimants.

The refund for the Luxembourg fund runs into tens of millions of Euros plus interest – a “significant win”, said PWC’s Teresa Owusu-Adjei, UK asset management tax leader, PricewaterhouseCoopers LLP.

Many European countries, including the UK, did not levy these illegal withholding taxes. But investors anywhere in Europe could benefit from the refunds. Moreover, all European countries will have to ensure their withholding tax on dividends regimes comply with the ECJ ruling.





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