French Tax Update - Amending Finance Bill For 2015 And Noteworthy Q4 Case Law

Author:Mr Siamak Mostafavi, Nicolas André and Alexios Theologitis
Profession:Jones Day

The present French Tax Update contains (i) an overview of the main provisions proposed by the draft amending finance bill for 2015 (loi de finances rectificative pour 2015, 2015 Draft Amending Finance Bill), (ii) an update of the parliamentary amendments adopted in respect of the draft finance bill for 2016 (loi de finances pour 2016, 2016 Draft Finance Bill, please see our November 2015 French Tax Update for further details), and (iii) an overview of several noteworthy decisions issued by European and French tax courts or committees during the past few months.


The 2015 Draft Amending Finance Bill was presented to the lower chamber (Assemblée Nationale) on November 13, 2015, where it was discussed until November 30, 2015, before going to the higher chamber (Sénat). Its final version should in principle be adopted by year-end.


Article 17 of the 2015 Draft Amending Finance Bill includes several proposals to bring the filing requirements imposed upon French financial institutions in line with EU Directive 2014/107/EU (dated December 9, 2014 and amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation). Under Article 1649 AC of the French tax code (FTC), French financial institutions are required to file a specific declaration containing the information necessary to allow the mandatory automatic exchange of information as designed by the treaties entered into by France. Such specific declaration relies on both the outcome of the Global Forum on Transparency and Exchange of Information for Tax Purposes held in Berlin on October 29, 2014 and on EU Directive 2014/107/EU. In order to allow the first exchanges of information as from 2017, the Draft Amending Finance Bill for 2015 proposes to authorize financial institutions to (i) operate automated processes to identify the relevant taxpayers, and (ii) collect all relevant data including tax identification numbers and tax residency information for all account holders and controlling holders thereof.


The 2015 Draft Amending Finance Bill proposes a number of modifications to the participation exemption regime (where a qualifying French parent company is 95 percent exempt in respect of dividends received from a qualifying subsidiary, and where dividends distributed by a qualifying French subsidiary to a qualifying EU parent is exempt from French withholding tax). The proposal's aim, essentially, is to align French legislation with the EU rules. The first proposed change relates to the ownership of the underlying shares. The traditional position of the French tax authorities (FTA) has been that the "bare ownership" of the relevant shares is not eligible for the participation exemption regime; this position was effectively defeated before the French courts. Under the 2015 Draft Amending Finance Bill, the bare ownership would now be eligible for the participation exemption; the "usufruct" (i.e., essentially the right to receive dividends) would still not be eligible. NB: These rules would also apply to outbound dividends paid by a French subsidiary to a qualifying EU parent company (plus a parent company located in Iceland, Norway, and Liechtenstein). The second proposal is to implement, into domestic law, the anti-abuse rules approved at EU level. The 2015 Draft Amending Finance Bill thus provides that no participation exemption would apply if the dividends are distributed as part of a non-genuine arrangement, or series of arrangements, where the principal objective, or one of the principal objectives, is to obtain a tax benefit that would be against the purpose of the participation exemption. A non-genuine arrangement (or series of arrangements) is one where the arrangement(s) has not been put in place for valid commercial reasons reflecting an economic reality. The main difference between the above proposal, and what is already available under the domestic "abuse of law" procedure, is that the latter may be used by the FTA only if they can evidence that the relevant arrangement(s) is purely (or quasi purely) tax motivated. NB: The above rules also would be applied to outbound dividends. The 2015 Draft Amending Finance Bill also proposes that the dividends received from a subsidiary based in a so-called "non-cooperative jurisdiction" (NCJ) are not eligible for the participation exemption, unless the parent company can prove that the underlying participation is not motivated by fraud or tax evasion. Under the current rules, the dividends received from an NCJ are never eligible for the participation exemption, without any safe harbor clause. The 2015 Draft Amending Finance Bill also proposes to include in the statutes a situation that is currently accepted by the FTA only as a tolerance: an entity based within the European Economic Area, holding between 5 to 10 percent of a French entity, would not be liable to any French withholding on any dividends received from such entity, if it could evidence that such withholding tax may not be imputed as a tax credit in the jurisdiction where it is located. Also, under the 2015 Draft Amending Finance Bill, the so-called "branch tax" would not be applicable to entities headquartered in Iceland, Norway, and Liechtenstein. The branch tax is a levy...

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