• Dividend Distributions within French Tax Groupings Now Only 99 Percent Tax Exempt
  • January 13, 2016 | Authors: Nicolas Andre; Siamak Mostafavi
  • Law Firm: Jones Day - Paris Office
  • As announced in our December 2015 French Tax Update, in a late parliamentary session on November 30, 2015, the French Government proposed, as part of the 2015 Amending Bill, new provisions to bring the FTC in line with the September 2, 2015 Steria judgment (please see our October 2015 French Tax Update for further details). In Steria, the European Court of Justice (ECJ) ruled that the taxation of a 5 percent add-back on dividends received from EU subsidiaries under the participation-exemption regime was in certain cases not compliant with the freedom of establishment principle.

    In order to end this restriction, Article 40 of the 2015 Amending Finance Bill provides that dividends received within a French tax grouping will no longer be fully exempt from corporate income tax, as the 5 percent add-back will no longer be neutralized. Correlatively, dividends received by members of a French tax grouping, be it from French or from EU subsidiaries, will be subject to a reduced add-back of 1 percent (i.e., dividends so received are effectively 99 percent tax exempt).

    Outside of a French tax grouping, the 5 percent add-back on dividends received under the French participation-exemption regime should remain unaffected (i.e., dividends so received are effectively 95 percent tax exempt).