The ECJ found that the freedom of movement of capital was breached by French domestic rules which provided that dividends paid by French companies to undertakings for collective investments in transferable securities (“UCITS”) in other Member States and third countries attracted withholding tax at a rate of 25%, whilst dividends paid by French companies to a resident UCITS were exempt from tax.

The ECJ considered the distinguishing criteria specified within the national rules when determining whether the situations of the foreign and domestic UCITS were objectively comparable. Given that the national rules distinguished solely on the basis of the place of residence of the recipient UCITS, it held that the tax position of the ultimate investors was irrelevant.  

The Court rejected arguments that the difference in treatment could be justified by overriding reasons of public interest and a request for limitation on the temporal effects of the judgment, no evidence having been advanced by the French government to enable the Court to consider the financial repercussions of the decision.