France: Dividends received by parent companies; different tax treatment challenged

CJEU judgment on French tax rules of dividends received

The Court of Justice of the European Union (CJEU) today issued a judgment concluding that the different tax treatment of dividends received by parent companies of tax-integrated groups, with such treatment depending on the location where the subsidiaries are established, is contrary to EU law. The CJEU judgment therefore holds that the French rules that allow a French parent company a full exemption in respect of dividends received from domestic subsidiaries under a group taxation regime, but effectively tax (up to) 5% of dividends received from shareholdings in EU subsidiaries, are in breach of the freedom of establishment.


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The case is: Groupe Steria SCA v. Ministère des Finances et des Comptes publics, C-386/14 (2 September 2015)

French tax law provisions

As explained by today’s CJEU release [PDF 106 KB], under French tax law, dividends received by a parent company by virtue of its shareholdings in other companies may be deducted from net total profits and, thus, are exempt from tax (except for a 5% portion corresponding to the costs and expenses relating to those holdings).

However, when the dividends are from companies belonging to a tax-integrated group, the proportion of costs and expenses can be deducted from the profits so that, ultimately, the dividends are not subject to any tax. Since only companies established in France may belong to such a tax group, the French tax rules exclude parent companies that own subsidiaries in other EU Member States from the benefit of the full tax exemption in respect of dividends received.

When the dividends are from subsidiaries established in other EU Member States, there is no provision for the possibility of deducting the portion of costs and expenses. The result is that the dividends are taxed at a rate of up to 5%. 

In summary, under the French participation exemption regime, dividends distributed by a subsidiary to a parent company are, in principle, tax exempt at the level of the parent company, with the exception of the fixed amount of 5% representing the charges incurred in relation to the holding in the subsidiary. However, the French group taxation regime allows the deduction of this fixed 5% add-back if both the parent company and the subsidiary are jointly taxed and part of a single tax group.


The taxpayer company, a member of a group and having holdings in subsidiaries established both in France and in other EU Member States, contended that the French tax treatment of dividends paid were contrary to the freedom of establishment under EU law because the company was denied the deduction of the 5% portion in respect of dividends distributed by subsidiaries established in another EU Member State (whereas, it would have been eligible for the exemption if the subsidiaries had been established in France).

The French Administrative Court of Appeal of Versailles referred the issue to the CJEU.

CJEU judgment

The CJEU today held that the difference in treatment established by the French tax law was not compatible with the freedom of establishment under EU law. The CJEU found that the French tax law:

  • Places parent companies that have subsidiaries established in other EU Member States at a disadvantage
  • Makes it less attractive for companies with subsidiaries in other EU Member States to exercise their freedom of establishment

The CJEU noted that in order for the difference in treatment to be compatible with the freedom of establishment, this different treatment must relate to situations that are not objectively comparable or must be justified by an overriding reason in the general interest. The CJEU concluded that the difference in treatment was not justified by an overriding reason in the general interest, such as a need to preserve the allocation of authority to impose taxes between the EU Member States.


Read a September 2015 report prepared by the KPMG member firm in the Netherlands


Read a September 2015 report [PDF 82 KB] prepared by KPMG’s EU Tax Centre

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