Correspondence: Luis Ferruz, Department of Accounting and Finance, C/Gran Vía, 2, 50005 — Zaragoza, Faculty of Economics and Business Studies, University of Zaragoza, Spain. Tel: +34 97 676 2494; Fax: +34 97 676 1769; E-mail: lferruz@unizar.es

¹is Full Professor of Finance and supervisor of the Research Group GIECOFIN in the Faculty of Economics and Business studies at the University of Zaragoza, Spain.

²is Assistant Professor of Finance in the Faculty of Economics and Business studies at University of Zaragoza, Spain.

³is Assistant Professor of Finance in the Faculty of Economics and Business studies at the University of Zaragoza, Spain.

Received 20 November 2006; Revised 20 November 2006.

Abstract

Investment funds have been one of the most important phenomena in EU financial markets over recent years. The effects of taxation on the final returns obtained by fund unitholders have been shown to be very different throughout the whole EU. By using an original tax methodology based on contingency tables, this paper provides evidence that private unitholders from several EU investment fund markets obtain systematically higher returns after taxes than private unitholders from other different EU countries in any investment scenario. The study proves that EU expansion in March 2004 has made this distorted competition stronger in the current EU fund industry.