European Court of Justice Advocate General Juliane Kokott, in an opinion issued June 11, concluded that France has violated freedom of establishment principles through a law that only gives domestic companies the opportunity to join a French group and take advantage of a special rule on group taxation. The regime, known as intégration fiscale, allows a parent company to have a full tax exemption for dividends received from subsidiaries.
Advocate General Kokot noted that French law generally provides that distributions of profits from a subsidiary to a parent company are tax exempt, but the exemption is not total. Excluded is a 5 percent proportion, which represents the charges incurred by the parent company in connection with its holding in the subsidiary, she said.
The Advocate General concluded that the French scheme restricts freedom of establishment because parent companies with holdings in companies resident in another EU state are disadvantaged as compared to those with holdings in domestic companies. She further concluded that the restriction is not justified by any overriding reasons in the public interest.
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