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ECJ Rules Against French Corporate Tax Provisions

by Ulrika Lomas, Tax-News.com, Brussels

17 June 2015


The European Court of Justice (ECJ) has provided a provisional ruling that recommends that a French tax regime that offers tax benefits exclusively to resident corporate groups contravenes EU law.

French legislation on corporation tax stipulates that distributions of profits from a subsidiary to a parent company are not, in principle, taxed at the parent. Excluded from this, however, is a five percent proportion, which represents the charges incurred by the parent company in connection with its holding in the subsidiary. These charges are not to be deductible because they serve the realization of non-taxable income by the parent company, namely the distribution of profits from its subsidiaries.

This effectively partial taxation of profit distributions does not occur, however, if the parent company and the subsidiary are taxed jointly under a regime known as intégration fiscale. Since foreign companies are not allowed to take part in this form of group taxation, the Court had been asked to examine whether such a regime is consistent with the freedom of establishment and the corporation tax legislation of the European Union.

In its ruling in the case, Groupe Steria SCA v. the French Finance Ministry (Case C-386/14), on June 11, the ECJ held that the regime gives an unfair disadvantage to resident companies and is therefore contrary to the EU law of freedom of establishment.

TAGS: Finance | tax | investment | European Commission | fiscal policy | law | equity investment | corporation tax | group taxation | multinationals | legislation | transfer pricing | France | tax breaks | dividends | Europe

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