Articles 2011

New opportunities to reclaim French withholding tax suffered on portfolio investments

Paris, le mardi 1 février 2011

International Tax Review

article signé par Severine Defert, Virginie Louvel-Loreal

The French provision of article 119 bis 2 of the French tax code that imposes a withholding tax (WHT) on outbound dividends while not subjecting French-resident investors to the same is a prohibited restriction on the free movement of capital in the EU which cannot be justified. This is based on the arguments in March 2010, when the European Commission asked France to amend its tax regime.

French tax law on the treatment of foreign pension funds was amended in 2009 to ensure compliance with EU law. However, such discrimination continues to exist for collective investment vehicles. In light of the large number of claims being referred to the French tax authorities on this issue (and the many that have already been rejected), one of the French tribunals has proposed an exceptional procedure. As a result, the tribunal which presided over the first decisions (in December 2010) has requested clarification on this issue from the French Supreme Court (Conseil d'Etat) in the form of an Avis (opinion).

This opinion (expected before March 2011) should clarify whether this French WHT can be considered as a restriction which cannot be justified by an overriding reason of public interest. This opinion should also provide further detail on the relevant level of comparison (fund, units/shareholder or globally), the necessary justification for sustaining a WHT claim in France and the applicable statute of limitations. The request also raises question about investments by non-EU parties.

Because of this procedure, both EU and non-EU collective investments funds investing in France may be able to successfully rely on the free movement of capital principle to avoid suffering a discriminatory withholding tax.

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