Form and Function in Investment Funds: Tax Transparency, Legal Personality and Capital Movements between the EU and Third States

This note examines the CJEU decision in Tax Authority for Large Traders v. Franklin Mutual European Fund (Case C-602/23), a case concerning the intersection of tax transparency of investment funds, legal personality of investment funds and capital movements between the European Union and third states. The case arose as a result of Austria’s refusal to grant a full withholding tax refund to a US-based investment fund. The Court held that non-resident entities from third states may be treated comparably to resident UCITS funds if they meet equivalent substantive criteria, such as risk-spreading and taxation at the unit-holder level. The Court rejected the notion that the legal personality of non-resident entities alone could justify differential treatment. The decision also clarified that tax authorities and national courts must consider the tax treatment of non-resident entities in the third state of residence when assessing comparability. This decision can be considered a precedent for the tax treatment of third-state investment vehicles.