By Simon Miller

UK investment funds could be set for a €5bn (34.02bn) windfall in tax rebate after the European Court of Justice ruled against a French foreign tax.

The ECJ ruled that France was not allowed to levy a witholding tax of 15% to 25% on foreign investment funds.

As a result, PwC estimates that UK investment funds that invest in French companies could see up to €5bn returned to them in tax rebates.

Teresa Owusu-Adjei, tax partner at PwC, said: “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. Europe-wide these claims could amount to as much as €20bn so it is in funds’ interests to act now.”

Although Sweden and Spain had already been force to change their rules, the ruling has set a precedent that could see other European countries such as Germany, Netherlands and Belgium ditch their own witholding tax.

With claims against France had already reaching €4bn, Kit Dickson, UK Financial Services tax partner at Deloitte, said that following the ruling, cases would have to retunr to the French courts for the decision to be implemented.

He added: "The ECJ did not block future claims (temporal limitation), which had been requested by the French Tax Authority. Funds with investments in EU securities will be considering their position and whether to take action to recover excess taxes that have been charged on their income in recent years. France and other member states may be considering whether there is a need to change legislation."

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