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February infringement package - France is required to amend its withholding tax rules on dividends paid to life insurance companies located in other EEA member states. Liam Lynch of our Insurance team explains.

French rules related to withholding taxes on dividends paid to non-French life assurance companies are, in the view of the European Commission, contrary to the free movement of capital. This view is consistent with various EU and French court decisions. 

Irish life assurance companies that have suffered this French withholding tax therefore have strong grounds to claim a refund from the French tax authorities. Affected companies should review whether and to what extent they have suffered this withholding tax, and in order to comply with statutory time limits consider at an early date whether to submit reclaims pending the outcome of the Commission’s infringement proceedings.

The following tax alert prepared by our colleagues in Paris sets out the details of this opportunity:

Formal notice

On 18 February 2021, the European Commission sent a letter of formal notice to France, first stage of the infringement procedure, regarding the withholding tax applied to dividends paid by French companies to life insurance companies established in another member state of the European Economic Area (EEA) and used to remunerate unit-linked policies ("UC").

Reason for the letter of formal notice

An obstacle to the free movement of capital

Articles 63 to 66 TFEU and Article 40 EEA provide that all restrictions on the movement of capital between member States are prohibited. The freedom of movement of capital applies to the constitution of assets, to direct investments that do not confer a definite influence on the decisions of a company and to portfolio investments. This freedom also applies to the payment of taxes and to the tax regulations applicable to dividends.

Targeted schemes

The European Commission in its letter of formal notice specifically targets unit-linked contracts issued by life insurance companies established in another EEA member state. Unlike euro-denominated contracts, UC policies are backed by underlying assets. These products allow policyholders, through the life insurance or pension contract, to invest in diversified securities (listed shares, unlisted shares, bonds, real estate fund units, FCPR units, etc.). In this context, the dividends received by the life insurer are intended to be fully allocated to the mathematical provision of the policy representing the policyholder's rights.

The European Commission considers that the French rules related to withholding taxes on dividends paid infringe the free movement of capital by treating non-resident insurance companies differently from insurance companies that are French tax residents.

  • French source dividends received by a French life insurance company are not subject to a withholding tax. The taxable income of life insurance companies is determined after the tax deduction of allocations to mathematical reserves. The dividends thus allocated to the mathematical provisions are de facto not taxed in the life insurer's hands.
  • Conversely, French source dividends received by a non-resident life insurance company are subject to a final French withholding tax, which may, however, be reduced on the basis of a double tax treaty, if applicable. This withholding tax is computed on the gross amount of the distributed income. As a result, the policyholder is penalized, as the yield on the unit-linked investment is automatically reduced by this withholding tax.

France has two months to respond to the Commission's arguments. Otherwise, the Commission may decide to send a reasoned opinion – the last step before referring the matter to the Court of Justice of the European Union.

New opportunity – Claim filing

This position of the European Commission is in line with European case law, which has been taken up by the French courts in recent decisions (CJEU, 13/11/2019, C-641/17, College Pension Plan of British Columbia, CAA Marseille 3ème Ch.) and which have recognised that the final taxation of income paid to a non-resident on a gross basis is contrary to European freedoms when it exceeds the tax that a French resident would be liable to pay on a taxable basis net of expenses directly linked to the acquisition of the income subject to withholding.

Thus, without prejudging the outcome of the procedure, the Commission has reinforced the basis on which the application of the withholding tax on the gross amount of dividends received by a non-resident life insurance company may be challenged, opening up opportunities for claims in France.

Foreign life insurance companies have strong arguments to request a refund of the amount of withholding tax applied, within the limits of the applicable statute of limitations, it being specified that the mechanics of the mathematical provisions expressed in units must be comparable to those applicable to French life insurance companies.

Get in touch

If you have any queries on the above update, please contact Liam Lynch of our Insurance team. We'd be delighted to hear from you.


Cédric Philibert
Lawyer, Partner
Tax – Financial services
KPMG Avocats Paris

Frédéric Martineau
Lawyer, Partner
Tax – Financial services
KPMG Avocats Paris

Olivier Main
Lawyer, Senior Manager
Tax – Financial services
KPMG Avocats Paris

Delphine Brunet
Lawyer, Senior Manager
Tax – Financial services
KPMG Avocats Paris