EUROPE – The European Commission has asked Germany and Austria to end discrimination against foreign investment funds and is seeking information from France.

If Germany and Austria do not comply, they face being taken to the European Court of Justice.

“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 said.

It says that tax provisions in the two countries violate European Union rules on free movement of services and capital.

The move was welcomed by the European investment fund group Fefsi, or Fédération Européenne des Fonds et Sociétés d’Investissement as a step in the right direction. “We are happy that the Commission is going forward,” said secretary general Steffen Matthias.

He suggested the Commission’s action was a way to keep the pressure on member states to push through legislation that may already be in the pipeline.

The Commission’s action follows its decision yesterday to take Denmark to the European Court of Justice over pensions tax discrimination.

The Commission says that in Germany only half the profits from domestic investment funds are taxable whereas all the profits from non-domestic investment funds are taxable. While in Austria, profits from domestic investment funds are taxed less than profits from foreign funds.

The Commission has sent both countries so-called “reasoned opinions”, which is the second stage of the infringement procedure. If it does not receive a satisfactory response, the Commission says it may decide to refer the cases to the European 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 is the first stage of infringement procedures.