France: 3% tax on distributions of profits | KPMG Global
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France: CJEU judgment concerning 3% tax on distributions of profits

France: 3% tax on distributions of profits

The Court of Justice of the European Union (CJEU) issued a judgment concluding that the 3% tax on certain distributions of profits made by French companies is not compatible with article 4 of the EU Parent/Subsidiary Directive when the parent company redistributes dividends received from its subsidiaries.


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The case was referred to the CJEU by the Conseil d’Etat—France’s high tax court. The issue was raised pursuant to litigation filed by the Association Francaise des Entreprises Privées (AFEP), with respect to the redistribution of dividends from a European source by a French parent company to its EU parent company. 


Read a report describing the CJEU judgment, as prepared by KPMG’s EU Tax Centre.

KPMG observation

Tax professionals with Fidal* believe that it is reasonable to expect the Conseil d’Etat to follow the position of the CJEU in its judgment. Claims regarding distributions of dividends made before 1 January 2017 and that are justified by the non-compliance with the EU Directive of article 235 ter ZCA of the French general tax law (as then in effect)—meaning before the Finance Law for 2016 which extended the exemption of the 3% tax to distributions specifically made to some foreign companies owning at least 95% of the capital of the French distributing company—appear to be reinforced by the CJEU judgment.

First, there is an unresolved question—whether the Conseil d’Etat would extend the consequences of the CJEU judgment to a redistribution by a French company of dividends received from non-EU subsidiaries or, also from French subsidiaries, on the basis that the treatment ought not to be different based upon the place where the subsidiaries are incorporated, and failing that, a reverse discrimination might exist. It is the opinion of tax professionals that it ought to be possible for taxpayers to file claims with respect to the tax paid in 2015 and 2016 on the redistribution of such dividends—even if the outcome of such claims remains uncertain. Such claims could be based on arguments drawn from the French Constitution and from articles 1P1 and 14 of the “European convention for the safeguard of the human rights” (ECSHR) that, according to a March 2017 decision of the French high tax court in the Layher case, prohibit unjustified discriminations.

A second question is whether the incompatibility of the 3% tax with article 4 of the EU Parent/Subsidiary Directive would be practically affected by the “add-back” carried out by the parent company and that is deemed to reflect the amount of expenses connected with the dividends.

A third question concerns how taxpayers can track the dividends “paid out” to the dividends “cashed in.”

Finally, note that the CJEU judgment does not affect cases in which the French company has paid the 3% tax with respect to dividends paid to its 95% or more foreign parent and that were not distributions from dividends received by the French company. In a separate judgment concerning the Belgian “fairness tax,” the CJEU found that such tax cannot be deemed to be equivalent to a withholding tax prohibited by article 5 of the directive because the entity liable for the tax is not the owner of the shares of the distributing entity, but the distributing entity itself. Since the distributing entity is also the taxpayer with respect to the French 3% tax, article 5 of the directive apparently would also be irrelevant also for this tax. 

In conclusion, tax professionals with Fidal believe that the compatibility of the 3% tax with the freedom of establishment is more and more doubtful when dividends have been paid to an EU company that, had it been a company established in France, could have engaged in a tax consolidation with the French company and could have avoided the tax. Here again, it may be helpful to rely on articles 1P1 and 14 of the ECSHR to challenge the tax—not only for distributions made to EU parent companies but also for distributions made to non-EU parent companies.


For more information, contact a tax professional with Fidal* in Paris or KPMG in New York:

Gilles Galinier-Warrain | +33 1 55681654 |

Patrick Seroin | +1 (212) 954-2523 |

Olivier Ferrari | +33 1 55681476 |

Laurent Leclercq | +33 1 55681642 |

Bruno Bacrot |

* Fidal is a French law firm that is independent from KPMG and its member firms.

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