EUROPE - Foreign asset managers investing in French companies can no longer be forced to pay withholding tax on dividends, the European Court of Justice (ECJ) has ruled.

Until now, the French government had levied a withholding tax on foreign investment funds ranging anywhere from 15% to as much as 25%, while local asset managers had been exempt.

On Thursday, the ECJ determined that the French legislation at issue constituted a restriction on the free movement of capital, which is prohibited under EU law.

It said EU law precluded the French legislation, "which taxes at source nationally sourced dividends when received by Ucits resident in another state, but exempts such dividends from tax when received by Ucits resident in France".

With the ruling, UK investment funds stand to recoup as much as €5bn in tax refunds, according to PwC.

The consultancy said the decision had set a precedent, and that countries such as Belgium, Germany and the Netherlands would be likely to cease levying similar taxes.

The European Commission has already forced some European countries such as Sweden and Spain to change what it considered to be discriminatory rules regarding withholding taxes against foreign investors.

Teresa Owusu-Adjei, tax partner at PwC, said: "Investment funds that may have paid this withholding tax any time over the last five years should investigate now as to whether they are able to claim rebates.

"Europe-wide these claims could amount to as much as €20bn, so it is in funds' interests to act now."