Incompatibility Of The French 3% Tax With The Parent-Subsidiary Directive

Author:Mr Thibaud Boucharlat and Julien Monsenego
Profession:Gowling WLG
 
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The CJEU confirmed on 17 May 2017 that the French 3% tax on distributed earnings is contrary to the Parent-Subsidiary Directive. French companies that received dividends from EU subsidiaries are thus authorized to claim repayment of the 3% tax levied in 2015 and 2016 on their dividend distributions. It also provides additional arguments to all the other French companies which had to pay this 3% tax.

Incompatibility of the 3% tax with the Parent-Subsidiary Directive

The Court of Justice of the European Union confirmed on 17 May 2017 that the French 3% tax on distributed earnings is contrary to the Parent-Subsidiary Directive.

More specifically, the Court ruled that Article 4 (1) (a) of the Parent-Subsidiary Directive, as amended on 8 July 2014, "must be interpreted as precluding a tax measure laid down by the Member State of a parent company, such as that at issue in the main proceedings, providing for the levy of a tax when the parent company distributes dividends and the basis of assessment of which tax is the amounts of the dividends distributed, including those coming from that company's non-resident subsidiaries".

According to the Court, the 3% tax on distributed earnings is thus creating a double taxation which is contrary to the purposes of the Parent-Subsidiary Directive, especially when the French company is redistributing dividends it received from non-resident subsidiaries.

Opportunity to request reimbursement of the tax unduly paid

In application of this decision, it is confirmed that French companies that received dividends from EU subsidiaries are authorized to claim repayment of the 3% tax levied on their dividend distributions.

Although it could be considered that, per se, this decision does not preclude a Member State to levy this tax on dividend distributions which do not constitute a redistribution of dividends received from EU entities (e.g.: distributions of operating earnings and/or redistribution of dividends received from French of non-EU subsidiaries), it gives strong arguments to claim for the reimbursement of any 3% tax...

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