On December 8, 2016 the European Commission issued a press release announcing that it referred FRANCE to the Court of Justice of the European Union for discrimination in the taxation of dividends.

The dispute concerns the refund of tax paid in France by companies with subsidiaries in other countries of the European Union (under the ‘advance payment of tax' mechanism). Although the Council of State had referred questions for preliminary ruling to the Court, it then adopted a restrictive interpretation of the CJEU judgment in two judgments handed down in December 2012. The Commission takes the view that those judgments are incompatible with EU law.

The Commission sent France a letter of formal notice on November 27, 2014, followed by a reasoned opinion on April 29, 2016. Since France has not yet complied, the Commission is now bringing the matter before the Court of Justice of the European Union.

The Commission has now referred France to the Court of Justice of the European Union for failure to act by maintaining discrimination in the taxation of dividends originating in other Member States of the European Union.

The Commission takes the view that France is not complying with the Court's judgment of September 15, 2011 (Case C-310/09, Accor, ECLI:EU:C:2011:581) on three specific points:

-   it does not take into account the tax already paid by non-French subsidiaries;

-   it limits the system of tax credits to one third of the dividend redistributed by a non‑French subsidiary. This limit constitutes a difference in treatment between companies receiving dividends originating in other Member States and those receiving dividends of French origin. The Commission considers that to be contrary to the right of establishment and to the free movement of capital;

-   in order to restrict the right of the companies concerned to a refund, it maintains requirements concerning the evidence to be provided, so does not comply with the criteria laid down by the Court of Justice in the above judgment.

Case C-310/09, Accor

In Case C-310/09 the following questions were referred for a preliminary ruling:

1.

(a)   Must Articles 56 [EC] and 43 [EC] be interpreted as precluding a tax regime intended to eliminate economic double taxation of dividends which:

–       allows a parent company to set off against the advance payment, for which it is liable when it redistributes to its shareholders dividends paid by its subsidiaries, the tax credit applied to the distribution of those dividends if they come from a subsidiary established in France,

–       but does not offer that option if those dividends come from a subsidiary established in another Member State …, since, in that case, that regime does not give entitlement to a tax credit applied to the distribution of those dividends by that subsidiary on the ground that such a regime would in itself, with respect to the parent company, infringe the principles of the free movement of capital or freedom of establishment?

(b)   If the answer to [Question 1(a)] is in the negative, must those articles be interpreted as meaning that they none the less preclude such a regime since the shareholders’ position must also be taken into account on the ground that, given the making of the advance payment, the amount of the dividends received from its subsidiaries and redistributed by the parent company to its shareholders will differ according to the location of those subsidiaries, in France or in another Member State …, with the result that that regime deters shareholders from investing in the parent company and, therefore, affects the raising of capital by that company and is likely to deter that company from allocating capital to subsidiaries established in Member States other than France or from setting up such subsidiaries in those States?

2.     If the answer to [Question 1(a) and (b)] is in the affirmative and if Articles 56 [EC] and 43 [EC] are to be interpreted as precluding the advance payment tax regime described above and, therefore, the administration is, in principle, required to reimburse the sums received under that regime in so far as they have been received contrary to Community law, does that law, under such a regime which does not of itself lead to the passing on of a tax to a third party by the person liable for the tax preclude:

(a)   the administration from opposing the reimbursement of the sums paid by the parent company on the ground that that reimbursement would lead to the unjust enrichment of the parent company,

(b)   and, if the answer is in the negative, the fact that the sum paid by the parent company does not constitute an accounting or tax charge for it but is set off only against the total of the sums which may be redistributed to its shareholders can be pleaded in support of an argument that that sum should not be reimbursed to the company?

3.     Taking account of the answer to [Questions (1) and (2)], do the Community principles of equivalence and effectiveness preclude the reimbursement of sums which ensure the application of the same tax regime to dividends redistributed by the parent company, whether those dividends originate from sums distributed by its subsidiaries established in France or in another Member State … being subject to the condition (apart, where relevant, in the case of stipulations in a bilateral convention applicable between [the French Republic] and the Member State where the subsidiary is established relating to the exchange of information) that the person liable for the tax furnishes evidence which is in its sole possession and relating with respect to each dividend concerned, in particular to the rate of taxation actually applied and the amount of tax actually paid on profits made by its subsidiaries established in the Member States … other than France, whereas, with respect to subsidiaries established in France that evidence, known to the administration, is not required?

The CJEU judged as follows:

1.     Articles 49 TFEU and 63 TFEU preclude legislation of a Member State intended to eliminate economic double taxation of dividends, such as that at issue in the main proceedings, which allows a parent company to set off against the advance payment, for which it is liable when it redistributes to its shareholders dividends paid by its subsidiaries, the tax credit applied to the distribution of those dividends if they originate from a subsidiary established in that Member State, but does not offer that option if those dividends originate from a subsidiary established in another Member State, since, in that case, that legislation does not give entitlement to a tax credit applied to the distribution of those dividends by that subsidiary;

2.     Where a national tax regime such as that at issue in the main proceedings does not of itself lead to the passing on to a third party of the tax unduly paid by the person liable for that tax, EU law precludes a Member State refusing to reimburse sums paid by the parent company on the grounds either that such reimbursement would lead to the unjust enrichment of the parent company, or that the sum paid by the parent company does not constitute an accounting or tax charge for it but is set off against the total of the sums which may be redistributed to its shareholders;

3.     The principles of equivalence and effectiveness do not preclude the reimbursement to a parent company of sums which ensure the application of the same tax regime to dividends distributed by its subsidiaries established in France and those distributed by the subsidiaries of that company established in other Member States, and subsequently redistributed by that parent company, being subject to the condition that the person liable for the tax furnish evidence which is in its sole possession and relating, with respect to each dividend concerned, in particular to the rate of taxation actually applied and the amount of tax actually paid on profits made by subsidiaries established in other Member States, whereas, with respect to subsidiaries established in France, that evidence, known to the administration, is not required. Production of that evidence may however be required only if it does not prove virtually impossible or excessively difficult to furnish evidence of payment of the tax by the subsidiaries established in the other Member States, in the light in particular of the provisions of the legislation of those Member States concerning the avoidance of double taxation, the recording of the corporation tax which must be paid and the retention of administrative documents. It is for the national court to determine whether those conditions are met in the case before the national court.

The judgement of the CJEU as available on the website of the CJEU can be found here.

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