France: Financial Amendment Law published

21.08.2012

Further to our Taxflash T12029, dated 14 August 2012, and effective

immediately

the amendment to the budget law for 2012 (loi de finance rectificative) was published on 17 August 2012 in the Official Gazette through Law N°2012-958 dated 16 August 2012 (hereinafter referred to as the "Financial Amendment Law").

Background

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

In order to comply with this principle, the Financial Amendment Law abolishes withholding tax on certain dividends distributed to some foreign collective investment vehicles (CIVs) and introduces a 3% additional contribution on corporate tax.

Impact on customers

Exemption from withholding tax on French dividends paid to foreign UCITSs

The exemption from withholding tax has been introduced by the Financial Amendment Law 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 those of the French 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 at least 95% held, directly or indirectly, by an SPPICAV or by an SIIC and an 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, 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% for qualifying CIVs that can prove their eligibility. However, the modalities of application have not been yet published by the French Tax Authorities.

3% contribution on corporate tax

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.

The modalities of the implementation of the Financial Amendment Law are under review with our local depository and the French Tax Authorities. We will continue to monitor the situation and will provide more information about the implementation of the Financial Amendment Law as it becomes available.

Further information

For further information, customers may contact the Clearstream Banking1 Tax Help Desk on:

LuxembourgFrankfurt
Email:tax@clearstream.comtax@clearstream.com
Telephone:+352-243-32835+49-(0) 69-2 11-1 3821
Fax:+352-243-632835+49-(0) 69-2 11-61 3821

or Clearstream Banking Customer Service or their Relationship Officer.

1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

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