martes, 4 de octubre de 2016

France: Validity of 3% dividend surtax referred to CJEU

France’s Administrative Supreme Court referred a case to the Court of Justice of the European Union (CJEU) on 27 June 2016, requesting a preliminary ruling on whether the 3% surtax on dividend distributions is in line with the EU parent-subsidiary directive (PSD).

Introduced in 2012, the 3% surtax is levied on French entities subject to corporate income tax, including French permanent establishments (PEs) of foreign companies. The surtax is levied at the level of the distributing company and is calculated based on the gross amount of the dividend, with the tax due at the time of the distribution. The surtax is levied on most dividend distributions (including deemed dividends). French tax law does not provide a mechanism to avoid a double (or multiple) levying of the surtax where dividends are distributed up a chain of companies.

Questions have arisen as to whether the surtax constitutes a “withholding tax” under the PSD. Under the PSD, no withholding tax may be levied on dividend distributions if the following requirements are met:

  • Both the parent company and the subsidiary have a qualifying legal form;
  • Both the parent company and the subsidiary are residents of an EU member state;
  • Both the parent company and the subsidiary are subject to tax in an EU member state; and
  • The parent company holds at least 10% of the shares of the subsidiary.

These requirements were met in the case referred to the CJEU, which meant that no withholding tax could be levied on the dividend distributions. The Administrative Supreme Court has questioned the validity of the 3% surtax in the context of the PSD, specifically, whether the surtax effectively constitutes a withholding tax.

The CJEU previously has ruled that a levy is considered a withholding tax when (i) the tax is due on the gross amount of the dividend; (ii) the tax is due at the time the dividend is distributed; and (iii) the taxpayer is the recipient (and not the payer) of the dividend. In one case, the CJEU relaxed this definition by considering the last requirement to be less important, although, in a subsequent case, the CJEU stated that it may have erred in that judgment.

The French court has asked the CJEU to determine whether the French surtax is a withholding tax for purposes of applying the PSD, since in the case of the surtax, the taxpayer is the distributing company and not the recipient of the dividend. If the CJEU rules that the surtax is a withholding tax, the surtax no longer could be levied where all other requirements for application of the PSD are met, and surtax already withheld potentially could be reclaimed.

In the case of French resident companies that enter into a fiscal consolidation, the surtax is levied only upon a dividend distribution that leaves the fiscally integrated group (i.e. the surtax is not levied on each distribution within the group). Since the fiscal consolidation regime is limited to French resident companies, multiple surtax levies can be avoided only in domestic situations. During the proceedings before the French court, the taxpayer argued that this violates EU law and that it should be entitled to the same fiscal advantage, i.e. a single levying of the surtax that would have taken place had the taxpayer entered into the tax consolidated group. This point, however, was not referred to the CJEU, but instead to the French constitutional court, which now must rule whether such an exemption complies with the equality principle in the French constitution.

Depending on how the CJEU (and constitutional court) rule on the cases, potentially affected EU and non-EU groups with French companies that have paid the 3% surtax in the past should consider filing protective claims to protect their entitlement to a refund of the surtax.

Source: Deloitte

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