France: Court questions validity of 3% tax on dividends

France: Court questions validity of 3% tax on dividends

France’s high tax court (Conseil d’Etat) issued four decisions that referred questions for judgment to the French Constitutional Court (Conseil Constitutionnel) and to the Court of Justice of the European Union (CJEU) with regards to the compatibility under EU law of the 3% surtax imposed on certain dividends by French law.

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Background

Under French tax law, a 3% surtax is imposed on dividends paid by French companies to their foreign parent company. There are only a few exemptions to the surtax. Because of this 3% surtax, it has been reported that French companies have been postponing making dividend distributions.

Issues referred

The Conseil d’Etat issued four decisions on 27 June 2016 that raised and referred the following issues concerning the 3% surtax and its compatibility with EU or French law:

  • Is the 3% surtax compatible with articles 4 and 5 of the EU Parent-Subsidiary Directive (a question referred to the CJEU)?
  • Is the 3% surtax compatible with the French constitutional principle of taxpayer equality, when a foreign parent company holds more than 95% of the French company (a question referred to the Constitutional Court)?

KPMG observation

Tax professionals with Fidal* have observed that one issue—whether the 3% surtax is compatible with the principal of freedom of establishment under EU law—was not referred to the CJEU, but that such compatibility could be highly questionable when the EU parent company holds (directly or indirectly) more than 95% of the subsidiary. 

There are other similar procedures currently under consideration by the European Commission and the CJEU—specifically the Belgian “fairness tax” that is described as being fairly similar to France’s 3% surtax on dividends and about which the compatibility issue is being addressed.  

Finally, taxpayers need to note that in order to challenge (i.e., seek a refund of) the 3% surtax on dividends, an administrative claim must be filed with the French tax authorities before 31 December of the second year following the year in which the 3% surtax was paid.

 

For more information, contact a tax professional with Fidal* in France or with KPMG in the United States:

Gilles Galinier-Warrain | +33 1 55 68 16 54 | gilles.galinier-warrain@fidal.com

Olivier Ferrari | +33 1 55 68 18 14 | olivier.ferrari@fidal.com

Laurent Leclercq | +33 1 55 68 16 42 | laurent.leclercq@fidal.com

Patrick Seroin | +1 (212) 954-2523 | patrickseroin@kpmg.com

 

* Fidal is a French law firm that is independent from KPMG and its member firms.

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