On 21 June 2018, the Court of Justice of the European Union (CJEU) issued its judgment in Fidelity Funds (C-480/16). This case concerned Danish withholding tax, which is imposed on dividends paid to non-resident portfolio investment funds but not on dividends paid to portfolio investment funds resident in Denmark.
The Danish authorities accepted that this difference in treatment constitutes a restriction on the free movement of capital, but argued that the restriction was justified by the need to safeguard the coherence of the tax system and to ensure a balanced allocation between the Member States of the power to impose taxes. The CJEU rejected those arguments and ruled that the difference constitutes a restriction in the free movement of capital that is not justified in this situation.
The case is therefore scheduled for a hearing before the Danish High Court in February 2019. In the meantime, we recommend that foreign investment funds file protective claims for a repayment of WHT suffered dating back to 2008 in order to avoid potential claims from being statute barred.
As the CJEU judgment concerns the free movement of capital, investment funds resident outside the EU should also, in principle, be able to file a claim.