France: Financial Amendment Law adopted

14.08.2012
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Further to our Taxflash T12025, dated 2 July 2012, we hereby inform customers that the French Financial Amendment Law was adopted on 31 July 2012 and will be effective as of the date of publication that will take place in the coming days.

The new law abolishes withholding tax on certain dividends distributed to some foreign collective investment vehicles, in order to comply with the principle of free movement of capital.

On 10 May 2012, the European Union Court of Justice judged (in the decision FIM Santander C-338/11) that French tax legislation was not compliant with the free movement of capital by levying withholding tax on dividends paid to foreign UCITSs while exempting those same dividends when paid to French UCITSs.

The exemption of withholding tax on French dividends paid to such institutions would be available provided that:

  • The fund is constituted under a foreign law and located in an EU Member State or in a country or territory that has entered into a mutual administrative assistance agreement with France in order to fight fraud and tax avoidance; and
  • The fund:

    • Raises capital from a certain number of investors in order to invest such capital, in compliance with a determined investment policy in the interest of those investors; and
    • Presents characteristics similar to the ones of the French collective investment vehicles (CIVs) listed under 1, 5 and 6 of I of Article L.214-1 of the French Financial and Monetary Code, which are:

      • French undertakings for collective investment in transferable securities (that is, French UCITSs, including SICAVs and FCPs);
      • French undertakings for collective investment in real estate (OPCI); and
      • French investment companies with fixed capital (SICAFs).

Important note:

The above-mentioned CIVs (including French CIVs) will not benefit from the exemption from withholding tax on the following distributions:

  • Dividends paid by a French Société de Placement à Prépondérance Immobilière à Capital Variable (Open-ended company with preponderant investments in real estate - SPPICAV) when such dividends have been paid out of benefits that have not been subject to corporate tax in France;
  • Dividends paid by a French Société d’Investissements Immobiliers Cotée (French-listed real-estate company (SIIC) and its subsidiaries when such dividends have been paid out of benefits that have not been subject to corporate tax in France;
  • Dividends paid by a company subject to corporate tax, having an object identical to that of an SIIC and held, directly or indirectly, at least 95% by SPPICAV or by SIIC and SPPICAV, when such dividends have been paid out of benefits that have not been subject to corporate tax in France, unless the beneficiary is a SPPICAV holding at least, directly or indirectly, at least 95% of the French distributing company.

In these cases, the Financial Amendment Law provides a reduced tax rate of 15%. Qualifying CIVs will have to prove their eligibility in order to benefit from it. However, the modalities of application have not been yet published by the French Tax Authorities.

Furthermore, in order to compensate the loss of revenues caused by the abolition of the withholding tax on income distributed to foreign UCITSs, a 3% levy will be assessed on dividend distributions made to resident and non-resident shareholders by both French companies and French branches of foreign companies.

This 3% contribution is due from the distributing entity that is liable to corporate income tax in France; it is not paid by the investor.

The 3% levy does not apply to distributions:

  • Made by French CIVs defined in article L. 214-1 of the French Monetary and Financial Code (for example, UCITSs, SICAFs);
  • Made by micro, small and medium-sized enterprises within the meaning of European Union Law;
  • Made to a company belonging to the same French tax consolidated group;
  • Paid in the form of shares, provided that share buy-back is not implemented within one year of the distribution.

We will continue to monitor the situation and will provide more information about the implementation of the Financial Amendment Law for 2012 as it becomes available.