On May 17, 2017 the European Commission released its “May infringements' package: Part 1: key decisions”. One of the key decisions is the Commission’s request to France to abolish withholding tax imposed on non-resident companies in deficit.

The Commission has requested that France abolish a withholding tax that applies to dividends received in France by companies based in other EU or European Economic Area (EEA) Member States. By applying a withholding tax on such dividends, according to the European Commission the French authorities are failing to fulfil their obligations regarding the free movement of capital (Article 63 TFEU and Article 40 of the EEA Agreement). The withholding tax leads to immediate taxation, without the possibility of a refund of the dividends paid to an EU and EEA company in the following situations:

·   first, when the company is in structural deficit, even though French companies do not pay this tax in comparable situations;

·   second, when the company is in a temporary loss-making phase, even though French companies facing the same difficulties are subject to taxation only when the firm regains its surplus.

An amendment of the legislation adopted by France at the end of 2015 applies only to non-resident companies facing both deficit and liquidation.

The Commission's request takes the form of a reasoned opinion. In the absence of a satisfactory response within two months, the European Commission may refer France to the Court of Justice of the European Union.

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