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France: Dividend distributions tax, tax legislative update; diverted profits tax

France: Dividend distributions tax

The French Ministry of Finance announced that a provision would be introduced to extend the benefit of an exemption from the 3% tax that is imposed on dividend distributions to foreign parent companies—and not just French parent companies—when the foreign parent companies satisfy, apart from their nationality, the conditions to be the head of a French tax group.


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As announced, this provision would be intended to extend the tax exemption to eligible foreign parent companies. The measure is expected to be included in the rectified Finance Law for 2016 (anticipated to be released within the next few days).

The provision, thus, would aim to resolve ongoing litigation that is pending at the European Union level, since at present, foreign parent companies cannot benefit from the exemption from the 3% tax on dividend distributions when made by their French subsidiaries (i.e., when there is at least a 95% ownership interest) because the foreign parent companies are not French companies that can be the head of a French tax group.


The French Constitutional Court (Conseil Constitutionnel) in September 2016 issued a judgment concluding that the exemption from a 3% tax that normally is imposed on dividend distributions made within French tax groups was unconstitutional, and that the tax exemption would no longer apply for such distributions made as from 1 January 2017.

Read TaxNewsFlash-Europe

Expected legislation

With the announcement from the French Ministry of Finance, dividend distributions made by French companies to either (1) their French parent company with which they would have set up a French tax group or (2) their foreign parent company (owning at least 95% of the share capital) could benefit from the exemption from the 3% tax on dividend distributions. In all likelihood, it would appear that this new measures would apply with respect to qualifying dividend distributions made as from 1 January 2017 (with dividend distributions made within French tax groups until such date being still exempt from the tax, in application of the decision of the Constitutional Court).

Draft Finance Law for 2017

The French National Assembly has voted on the draft Finance Law for 2017, and the legislation is now pending before the French Senate. Under the French legislative process, in instances when there are disagreements between the two houses, the ultimate decision, at the end of the parliamentary process, is that of the National Assembly.

The French Ministry of Finance presented, during a press conference on 28 September 2016, the main tax provisions of what will be the draft Finance Bill for 2017, prior to the bill being submitted to the French Parliament. Read TaxNewsFlash-Europe

Among modifications and additions to the previously described provisions are the following items:

  • Extension of the scope of the tax on financial transactions, to apply to intra-day transactions and an increase in the rate of this tax to 0.3% (instead of 0.2%)
  • Acceleration of the phase-in of the reduction of the corporate tax rate for small and medium size enterprises
  • An anti-abuse provision aimed at addressing certain schemes used by individuals to decrease their liability for the wealth tax
  • Modification of what had been a favorable regime applicable to the granting of “free shares” (a less taxpayer-friendly modification so that the amount realized from such “free shares” would be taxable as a salary (and not taxable as capital gains) and subject to social contributions); also the tax to be paid by the contributing company would be increased from 20% to 30%

Diverted profits tax being considered

A member of the National Assembly proposed last week to introduce a tax that would resemble to a certain extent the UK diverted profits tax. 

The French Ministry of Finance disagrees with the need for a diverted profits tax. Nevertheless, the proposal is expected to be discussed during the legislative process for the Finance Law for 2017. 

Under the proposed diverted profits tax, profits realized in France by companies established outside France and resulting from the sale of goods or services through what would be deemed to be—for the purposes of this provision—a permanent establishment in France, would be taxable in France. 

For these purposes, companies would be deemed to have a permanent establishment in France as soon as the company, or an entity established in France, sells goods or services (or certain rights) of the foreign company and the foreign company holds directly or indirectly at least 50% of the shares (financial or voting rights) of the French company / entity, or the French company / entity is controlled by the foreign company. A French permanent establishment could also be found to exist in other instances—such as in a dependent agent or warehouse situation.

Certain exceptions to the French diverted profits tax would be allowed. Also, the amount of taxable profits would be equal to the amount that would have been realized in France, absent any artificial schemes aimed at avoiding tax. Such profits would be subject to the French corporate tax rate, but increased by five percentage points (i.e., a rate of 38.33%). Foreign taxes paid on such profits and comparable to the French corporate tax would be creditable.


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 | 

Olivier Ferrari | +33 1 55 68 18 14 |

Laurent Leclercq | +33 1 55 68 16 42 |

Patrick Seroin | +1 (212) 954-2523 |   


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

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