EUROPE: The Fokus Case – implications for authorised funds

Monday June 20 2005

Following the decision in the Fokus case and other related cases, UK shareholders, including authorized funds, who have suffered withholding tax on dividends from European or EEA-based companies should consider lodging claims for refund of withholding tax.

In the Fokus case, the European Free Trade Association Court ruled that the Norwegian tax system is discriminatory in granting Norwegian shareholders an imputation tax credit in relation to dividends paid by a Norwegian company, whilst denying this to non-residents. The importance of the Fokus case is that it is the first time a European Court has decided on the tax treatment of foreign shareholders with regard to outbound dividends. It is expected that the Courts opinion will have an impact on other European jurisdictions which discriminate between residents and non-residents in applying their dividend withholding tax – these potentially include Belgium, France, Finland, Germany, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal and Spain.

As regards funds, it is worth remembering that UK authorized funds use their overseas WHT by way of DTR (double taxation relief), and therefore if this withholding tax is refunded as a result of Fokus, then the DTR relief would be lost and the fund would have to pay more corporation tax. Therefore, a fund may not stand to gain at all from lodging a claim for a refund. Funds in other EU / EEA jurisdictions where the DTR reliefs are not so generous may stand to gain more.