EUROPE – The European fund market has seen little progress towards the elimination of tax discrimination and towards a singe European market, says a follow-up report by PricewaterhouseCoopers in collaboration with FEFSI, the federation of the European investment funds industry.

Following a report 18 months ago, FEFSI wrote to the ministers of finance of all the member states where discriminatory measures against foreign funds had been identified, but the latest update reveals that there has been little government action to improve the situation, says PWC.

While the latest report show that a few steps towards the elimination of tax discrimination have been taken in some countries, only Greece in the whole EU has acted to eliminate its discriminatory tax measures completely. Austria, France and the UK have shown signs of reducing or eliminating discrimination, but Germany and Ireland have seen proposals to introduce new discriminatory measures.

“Such measures are continuing to form a formidable obstacle to the development of a real single market in investment funds,“ says PWC.

Says David Newton, tax partner at PWC and author of the follow-up report: “The original report in June 2001 not only identified illegal tax discriminations but also set out the basis on which they could be challenged under EU law. Since then the Commission has only commenced infringement proceedings against one country (Germany), which begs the question: ‘why have the other countries escaped similar action so far?’”

FEFSI agrees that, while the European Commission has taken action against Germany’s actions “other countries also need to be taken to task.”

For the funds industry it would be possible to make progress independently says the report, but it must be as prepared as the insurance industry to take up discrimination cases where its interests are adversely affected.

Discrimination in the areas of double tax treatment including investor credit for foreign tax and investment fund mergers should be also be addressed, says the report. Mergers between investment funds that are resident in different EU member states normally result in a tax charge, but such mergers, says the report, are “essential if the EU single market in investment funds is to be achieved”.

The full report is available on