In a recent judgment, the European Court of Justice (ECJ) has ruled against the different tax rules France applies to the taxation of resident UCITS and non-resident UCITS. The ECJ considers that the French legislation at issue constitutes a restriction on the free movement of capital which is prohibited under EU law. Under French tax legislation, dividends paid by companies resident in France to UCITS (special investment companies managed by a management company or investment company) which are not resident in France are taxed at source at the rate of 25%, whereas such dividends are exempt from tax when paid to resident UCITS.

In the case of Santander Asset Management SGIIC SA v. Directeur des résidents à l’étranger et des services généraux, C-338/11 (10 May 2012), the ECJ said that while national governments have the right to apply different tax provisions to residents and non-residents, these provisions must not constitute arbitrary discrimination or a disguised restriction of the free movement of capital and payments.

For full details see http://curia.europa.eu/jcms/upload/docs/application/pdf/2012-05/cp120058en.pdf