French 3% additional contribution on distribution of profits:  the European Commission opens infringement procedure against France

Companies or entities subject to CIT shall pay a contribution of 3% assessed on distributed income. Are particularly concerned French subsidiaries distributing dividends to their foreign parent company.

However, this contribution is not applicable either to SMEs as defined by EU law or distributions within a tax consolidation group.

Implementation of this contribution leads to subject profits distributed by French subsidiaries to foreign parent companies to a taxation higher than 5%.

This additional tax burden may prevent European companies from setting up in France, and thus infringe or render less attractive the exercise of the freedom of establishment[1].

On 26 February 2015, the European Commission launches infringement procedure against France to question the legality of this tax.

Even if no European court decision has been yet rendered on this 3% contribution, the Court of the Justice of European Union (hereafter « CJEU ») recently considered, in its decision on the Steria[2] case, that the difference of treatment that applies to taxation of dividends whether they are received by a French company part of a tax consolidation group or by European company infringes the freedom of establishment.

Without waiting for such a CJEU decision, the opportunity of filing claims no later than 31 December 2015 to obtain the refund of the 3% contribution should be considered.

 

[1] Article 49 of Treaty on the Functioning of the European Union (TFEU)

[2] CJUE September 2nd, 2015, Affaire C-386/14

Fabrice DELOUIS

Co-Founder & Partner - Taxation
Fabrice DELOUIS has been assisting his customers throughout their projects for the past twenty years.

He majored in tax law and obtained a DJCE (Diplôme de Juriste Conseil d’Entreprise/Business Law Consultant Degree). He also holds a Master of business and Tax Law.

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