The EU Commission today notified France that it considers France’s withholding tax on dividends paid to subsidiaries located in other EU States or European Economic Area (EEA) Members States to be contrary EU law.
The Commission said that in cases where the recipient of the dividend is either in a tax loss position or undergoing a liquidation procedure, a dividend recipient is worse off if it is a foreign company than it would be if it was a French company.
In both instances, the French withholding tax leads to immediate taxation without the possibility of a refund if the dividends paid to an EU or EEA company. The dividends would be free of immediate taxation if the recipient were a French company, though, the Commission observed. Because of this difference, the law does not comply with EU concepts of free movement of capital, the Commission argues.
The Commission acknowledged that France amended its laws in 2015, but said that new tax legislation only exempts only non-resident companies that face both deficit and liquidation.
The Commission said that if the French authorities do not respond its concerns within two months, it may refer the matter to the Court of Justice of the EU.
French law incorporates the parent-subsidiary directive so, in many cases, dividends distributed by a French company to an EU company are exempt from France’s 30 percent withholding tax.
