Possible refund of the EU WHT levied on dividends paid to non-EU investment funds

The European Court of Justice (ECJ) has confirmed, in a judgment of 10 April 2014 (Case "Emerging Markets Series of DFA Investment Trust Company" (C-190/12)), that non-EU UCITS-like funds are entitled to file claims for refund of withholding taxes borne on the collection of dividends originated in companies resident in EU countries, provided that there is a tax treaty in force containing mutual administrative assistance clauses.

Contents of the judgment

This judgment is issued in the context of a dispute between an investment fund established in the United States and the Polish tax authorities. The US investment fund received dividends from Polish companies and requested from the Polish tax authorities the refund of the WHT levied on those dividends on the basis that, according to Polish Law, investment funds established in Poland are exempt from taxation. As a result of the rejection of that request, the fund brought an action before the Polish administrative court which sought a ruling from the ECJ.

Finally, the ECJ has held that Articles 63 TFEU and 65 TFEU on the free movement of capital must be interpreted as precluding tax legislation of a Member State, such as that at issue in the main proceedings, under which dividends paid by companies established in that Member State to an investment fund situated in a non-Member State cannot qualify for a tax exemption, provided that that Member State and the non-Member State concerned are bound by an obligation under a convention on mutual administrative assistance which enables the national tax authorities to verify any information which may be transmitted by the investment fund. The ECJ has also held that it is, however, for the national court to examine whether the mechanism for the exchange of information provided for within that co-operation framework enables the Polish tax authorities to verify the information provided by investment funds established in the United States.

Subject to a country-by-country analysis, this ruling opens the door to non-EU UCITS-like funds resident in jurisdictions with tax treaties signed with EU countries to file claims for refund of withholding taxes borne on the collection of EU-sourced dividends. These claims, the amount of which could be very substantial, must be filed before the statutes of limitations established by each jurisdiction expire.

Our experience in the refund of EU WHT to EU UCITS and pension funds

Since 2006 Ashurst is advising seven major asset management companies at an administrative and court level in claiming for the refund of the WHT unduly levied on the dividends paid in France, Germany, Italy and the Netherlands to the Spanish UCITS and/or pension funds they represent, on the grounds of the infringement of the free movement of capital within the EU. Ashurst Madrid has co-ordinated all the proceedings conducted locally by our offices and correspondent firms, including the follow-up of the enforcement of judgments held by the ECJ against Germany and Italy and has also advised Banco Santander before the ECJ in the proceedings arisen from the preliminary question raised by a French court, which resulted in the judgment dated 10 May 2012 (Cases C-338/11 to C-347/11) where the ECJ held for the first time that discrimination existed in the tax treatment of dividends distributed to non-resident UCITS. As a result, our clients have so far been reimbursed substantial amounts in France, Italy and the Netherlands.