France Ordered To Amend Group Tax Policy

by Ulrika Lomas, Tax-News.com, Brussels

08 December 2008

The European Court of Justice has ruled that France’s tax integration policy, enabling profits and losses of parent companies and their French subsidiaries to be combined for tax purposes, contravenes the freedom of establishment law, contained in the Treaty establishing the European Community.

According to the Court, France’s tax integration policy violates the freedom of establishment law as it “…precludes legislation of a member state by virtue of which a group tax regime is made available to a parent company which is resident in that member state and holds subsidiaries and sub-subsidiaries which are also resident in that state, but is unavailable to such a parent company if its resident sub-subsidiaries are held through a subsidiary which is resident in another member state”.

The recent verdict follows the court’s ruling in favour of French property company Papillon, where it upheld the company's demand that a tax adjustment be annulled.

In this particular instance, the French administration had refused to allow Papillon the right to include losses, incurred by several of its French subsidiaries, in its tax declaration.

Defending its position, the French administration stated that the French sub-subsidiaries were, in fact, held by the Dutch subsidiary company, APC, therefore allowing the risk of possible fraud and tax evasion.

However, in light of the ruling, France must immediately amend its group tax policy, in order that it strictly complies with the freedom of establishment law.

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