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Laven Legal Services’ June Newsletter

Posted on 19 Jun 2012

ECJ Rules on French Withholding Tax on Non-French Resident Investment Vehicles

The European Court of Justice (“ECJ”) has ruled that a withholding tax imposed on the dividends of French-resident firms paid to investment vehicles not resident in France, is illegal under EU law.  In a case likely to have far-reaching consequences for the alternative investment industry, the ECJ found that as the tax is not levied on dividend payments to French-resident investment vehicles it breaches the EU principle of free movement of capital resulting from articles 63 and 65 of the Treaty of the Functioning of the European Union.

The case was first brought to the French courts by German, Belgian and Spanish UCITS funds, in addition to a similar US vehicle. French authorities levy a 30% withholding tax (or 25% for payments made prior to 1 January 2012) on dividends of French companies paid to these funds. The funds argued this was illegal according to the provisions of free movement of capital contained in Article 63 of the Treaty on the Functioning of the European Union as domestic funds are not subject to this tax. The French courts referred the argument to the ECJ, which found it in favour of the funds, ruling that such a tax could not be levied solely on non-resident funds.

Although the case centres on EU-resident UCITS, it is likely to be applicable to a broader range of investment vehicles, as well as non-EU funds – particularly those in jurisdictions with a tax treaty with the relevant member state, as is the case between the US and France.

The ECJ also ruled that the effects of its decision apply retrospectively, thus EU-resident funds are entitled to a refund of withholding tax levied on them. Whilst no similar tax is levied in the UK, several other states – including the Netherlands where a similar case is currently pending – will need to review their arrangements on withholding tax, which could lead to investors receiving a tax rebate of over EUR 20 billion according to estimates.

CSSF releases information on KIIDs ahead of July deadline

The CSSF, Luxembourg’s financial regulator, has released practical information on its requirements for the Key Investor Information Document (the “KIID”), which must be produced for all UCITS by July 2012.

A draft KIID must be filed electronically to the CSSF in Luxembourgish, French, German or English as part of the approval process for new UCITS or new compartments of UCITS. KIIDs of new unit or share classes of compartments or UCITS already approved by the CSSF do not however require prior approval by the CSSF and a copy of the document must simply be filed with the regulator before being issued.

Additionally, KIIDS filed by UCITS to replace an existing simplified prospectus by 1 July 2012 will not require CSSF approval.

The CSSF has also confirmed that investment companies and management companies are responsible for drawing up KIIDs and the Boards of Directors of these companies, therefore, are accountable for the KIIDs’ content.

Any translations of the KIID used in another EU host member state are not required by the CSSF, but the UCITS is responsible for ensuring that such translations ‘faithfully reflect’ the content of the original document which has been filed with the CSSF.

Should you wish to discuss any of the above with us, please do not hesitate to contact Kaltrine Balaj (Conseiller juridique au Luxembourg) on +44(0)207 594 4973 or kaltrine@lavenlegal.com.