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Refund of withholding tax paves way for EU investment fund reclaims

Investment funds across the EU who are challenging unlawful application of withholding taxes levied on dividends can expect refunds of millions of euros following Norway’s decision to refund withholding taxes to a Luxembourg Sicav, according to PricewaterhouseCoopers.

In June 2009 the ECJ issued its final judgment in the Aberdeen Property Fininvest Alpha Oy case in favour of the taxpayer, ruling the application of withholding tax on dividends paid to non-resident investment funds, while exempting domestic investment funds, discriminatory and in breach of Articles 43 and 48 and Articles 56 and 58 of the EC Treaty.

This ruling has set the wheels in motion for victory for the tax payer in other cases where withholding tax on dividends has been levied, as demonstrated by this Luxembourg Sicav case.

Teresa Owusu-Adjei, UK asset management tax leader, PricewaterhouseCoopers, says: “The refund runs into tens of millions of Euros, plus interest for the Luxembourg Sicav which is a significant win for the fund.

“While the UK does not have a tax regime that applies withholding tax on dividends many investors in asset and pension funds in Europe will be pleased to hear the outcome of this case. The values to be reclaimed from unlawful application of a discriminatory nature are significant.

"The current economic climate is challenging, and reclaiming overpaid tax on funds will be most welcome to those investors who find they have been unlawfully treated.”

Other European countries such as France, Germany, Italy, Spain and Belgium apply withholding tax on dividends paid to funds, while exempting their domestic funds from such taxes.

This week’s settlement sets a precedent for other fund claimants to come forward with a case of unlawful treatment under EU Law.

Owusu-Adjei adds: “Both the Aberdeen ECJ ruling and this settlement with the Luxembourg Sicav will have a significant impact on the current withholding tax on dividends regimes applied in EU and EEA jurisdictions, ensuring a level playing field for all funds."

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