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Brussels, 10th July 2003

Taxation: Germany and Austria must end discrimination against foreign investment funds; Commission seeks information from France

The European Commission has decided to send official requests to Germany and Austria to put an end to discriminatory tax treatment of foreign investment funds that makes it more difficult for foreign funds to market their services in these two countries. The Commission considers that certain tax provisions in the two countries violate EC Treaty rules on free movement of services and capital (Articles 49 and 56). In particular, in Germany only half the profits from domestic investment funds are taxable whereas all the profits from non-domestic investment funds are taxable. Also in Austria, profits from domestic investment funds are taxed less than profits from foreign funds. In both cases the formal requests take the form of reasoned opinions, the second stage of the infringement procedure provided for in Article 226 of the EC Treaty. In the absence of a satisfactory response within two months, the Commission may decide to refer the cases to the Court of Justice. The Commission has also decided to send a formal request for information to France concerning tax allowances that are available on income from shares issued in France but not elsewhere. This request takes the form of a letter of formal notice, the first stage of infringement procedures under Article 226 of the EC Treaty.


Under rules on the taxation of dividends introduced in Germany in October 2000 and applicable from 2001, corporation tax is no longer charged to shareholders' income tax, but companies and their shareholders are taxed independently. To compensate for this economic double taxation, the corporate tax rate has been reduced to 25% and only half the amount of dividends distributed to shareholders is taxed (so-called "Halbeinkünfteverfahren"). However, in the case of foreign investment funds, the full amount of dividends distributed is taxable. Moreover, the distinction made in Germany between foreign investment funds according to their structure and accounting methods (so-called "white", "grey" or "black" funds) with resulting differences in taxation is considered by the Commission to be incompatible with the EC Treaty insofar as it results in disproportionate tax burdens on foreign investment funds.

The Commission has been informed that the German Government intends to present new legislation on the taxation of investment funds in general to apply as from January 2004, but no draft legislation had been published so far. However, the Commission appreciates that the draft legislation presented in autumn 2002, which would have extended the discriminatory taxation of foreign funds to capital gains, was withdrawn after, inter alia, the Commission expressed its concerns.


Austria's Income Tax Act provides for tax relief for residents whereby they may either be subject to final taxation ('Endbesteuerung') of 25% on capital income (including inheritance tax) or they may apply to be taxed at only half of their individual marginal tax rate for such income (Halbsatzverfahren). However, both of these tax advantages are not available for income received from foreign investment funds. The Austrian government has presented draft legislation to amend the discriminatory provisions; it has not yet been adopted.


French tax legislation (Article 158, paragraph 3 of the 'Code Général des Impôts') grants a tax allowance of €1220 for single people and €2440 for married couples on certain income from shares issued in France but not those issued elsewhere. The Commission is concerned that the effect of this discriminatory treatment is not only to encourage French taxpayers to exclusively invest in shares issued in France, but also to discourage French taxpayers from investing in investment funds from outside France. Such discrimination may be in violation of EC Treaty rules on the freedom to provide services (Article 49) and on the free movement of capital (Article 56), as well as the investment funds (UCITS) Directive (85/611/EEC). The Court of Justice has ruled (notably in its 6th June 2002 ruling on the Verkooijen case C-35/98) that tax incentives to invest in shares issued in a particular Member State can constitute an illegal restriction on the free movement of capital.

The Commission has therefore decided to issue a formal request for information, giving France two months to reply. In the absence of a satisfactory response, the Commission may decide to formally request France to amend its legislation through a so-called 'reasoned opinion', the second stage of infringement procedures.

The Financial Services Action Plan, presented in May 1999 and endorsed by the March 2000 Lisbon European Council (see IP/99/327 and IP/02/1785), includes the elimination of tax obstacles and distortions as part of measures to ensure an optimal single financial market.

The latest information on infringement procedures concerning all Member States can be found at the following site:

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