By Arne Riis, Poul Erik Lytken, Tina Buur Johnsen and Tanja Warschow.
Published in TerraLex Connections July 2014.
On 10 April 2014 another jigsaw piece was added to the puzzle when the European Court of Justice (ECJ) delivered its decision in the Polish case C-190/12 (“Emerging Markets Series of DFA Investment Trust Company vs. the Head of Tax Office in Bydgoszcz”). The decision, which deals specifically with non-EU investment funds, follows a number of cases brought before the Court by Member States, which have met with claims from investment funds for repayment of European withholding taxes, or by the Commission in infringement proceedings.
The main conclusion to take away from the most recent decision is that the Member States cannot justify the exclusion of non-EU investment funds from the benefit of a general tax exemption if the source state’s tax authorities have the means necessary to verify the comparability between the non-EU funds and their domestic funds. On this point the ECJ’s decision contrasts with the opinion of Advocate General Mengozzi. Basing his opinion on the absence of a framework that allows for the exchange of information on the foreign investment fund’s regulatory position, equivalent to the EU UCITS Directive, the AG reached the conclusion that the restrictions could be justified based on the need to ensure effective fiscal control.
This article contains our analysis of this judgment and examines the relevant treaty provisions and previous decisions from the ECJ and whether the Danish tax treatment of foreign UCITS is in line with this decision. The expected impact of the Polish case does, however, stretch far beyond Denmark and Poland as many other EU countries have tax systems with differential treatment of foreign investment funds compared to national or EU based UCITS.