Dividend Withholding Tax Exemption And Specific Anti-Abuse Provision

Author:Mr Siamak Mostafavi, Nicolas André and Alexios Theologitis
Profession:Jones Day
 
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In a recent decision (CAA Versailles, July 8, 2015, n°13VE01079), the Versailles Administrative Court of Appeals (CAA) provided an interesting illustration of the operation of the specific anti-abuse provision (i.e., different from the general abuse of law theory) attached to the dividend withholding tax exemption provided, in accordance with the EU Parent-Subsidiary Directive, by Article 119 bis of the French tax code (FTC). Following an audit performed in 2010, the FTA challenged the withholding tax exemption applied by a French company (FrenchCo) in respect of the dividends it distributed in 2007 to its sole shareholder, a company located in Luxembourg (LuxCo). All of the shares of LuxCo but one were held by a company located in Cyprus (CypCo), itself held by a company located in Switzerland (SwissCo). Under Article 119 bis of the FTC, the standard 25 percent withholding tax applicable to dividends is eliminated, provided inter alia that the recipient of the dividends is not part of a holding structure that is constitutive of an artificial arrangement whose main purposes is the benefit of the withholding tax exemption. After confirming that such specific anti-abuse provision complies with EU law freedoms to the extent that it aims at combating tax evasion, the CAA took the position that the burden of the proof attached to the purpose of the holding structure was on FrenchCo (in principle, the burden of the proof falls on the recipient of the dividends, but only where the recipient is a party to the litigation, which was not the case for LuxCo; however, under general French...

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