FRANCE - The European Commission has summoned France to the European Court of Justice over tax issues related to foreign pension funds and investment funds.

The Commission said it was taking France to court for discriminatory taxation of foreign investors.

Under French law, dividend payments made by local companies to foreign pension funds and investment funds - including those based in the European Union - are subject to a withholding tax of as much as 25%.

This percentage can be reduced to 15% if there is a bilateral treaty between France and the country where the investor is based.

However, under the same law, dividend payments made by local companies to French investors are granted a withholding tax exemption.

The European Commission first asked France to change the tax law in March 2010.

That year, the French government introduced new legislative provisions under which the income from shares distributed to non-profit organisations (including pension funds), established in France or not, are taxed at a flat rate of 15%.

"However," the Commission said, "it seems these changes have not been applied in practice in the absence of more detailed administrative implementing rules."

The European institution considers that this difference in treatment limits the free movement of capital.

"As a result of this discrimination," it added, "pension and investment funds based in other EU countries and in the EEA are placed at a disadvantage compared with their French-based counterparts, and French customers are, therefore, liable to enjoy less choice of pension and investment funds."