Tax Neutrality Treatment of Investment Funds in the European Union

This article examines the legal consequences and assesses the economic impact of the differing tax treatment of investment funds in Portugal, Germany and Luxembourg before and after the Allianzgi-Fonds landmark decision, by the CJEU. Before the Allianzgi-Fonds decision the Portuguese investment taxation discriminated against foreign investments by levying a withholding tax on foreign compared to domestic investments. The Allianzgi-Fonds decision prohibited this discriminatory treatment. Therefore, our article examines whether the Portuguese CIT exemption extended to non-resident UCITS will lead to tax neutrality treatment of investment funds in the EU. Overall, we confirm that the abolishment of the discriminatory withholding tax can considerably reduce the effective tax levels for cross-border investments. Moreover, the abolishment also diminishes the domestic investment bias. Nonetheless, the results do not confirm the achievement of neutrality.