In a recent decision (CAA Versailles, July 8, 2015,
n°13VE01079), the Versailles Administrative Court of Appeals
(CAA) provided an interesting illustration of the operation of the
specific anti-abuse provision (i.e., different from the general
abuse of law theory) attached to the dividend withholding tax
exemption provided, in accordance with the EU Parent-Subsidiary
Directive, by Article 119 bis of the French tax code (FTC).
Following an audit performed in 2010, the FTA challenged the
withholding tax exemption applied by a French company (FrenchCo) in
respect of the dividends it distributed in 2007 to its sole
shareholder, a company located in Luxembourg (LuxCo). All of the
shares of LuxCo but one were held by a company located in Cyprus
(CypCo), itself held by a company located in Switzerland
(SwissCo).
Under Article 119 bis of the FTC, the standard 25 percent
withholding tax applicable to dividends is eliminated, provided
inter alia that the recipient of the dividends is not part of a
holding structure that is constitutive of an artificial arrangement
whose main purposes is the benefit of the withholding tax
exemption.
After confirming that such specific anti-abuse provision complies
with EU law freedoms to the extent that it aims at combating tax
evasion, the CAA took the position that the burden of the proof
attached to the purpose of the holding structure was on FrenchCo
(in principle, the burden of the proof falls on the recipient of
the dividends, but only where the recipient is a party to the
litigation, which was not the case for LuxCo; however, under
general French administrative law principles, the burden of the
proof is on FrenchCo because it is the only party with actual
information in respect of the relevant condition, i.e., the purpose
of the holding structure).
As a result, the CAA reviewed the elements provided by FrenchCo and
ruled that they were all insufficient to demonstrate that the main
purpose of the holding structure was not the benefit of the
withholding tax exemption provided by Article 119 bis of the FTC.
In order to deny the benefit of the official guidelines published
by the FTA in respect of such withholding tax exemption, the CAA
further elaborated that the interposition of LuxCo, which had
neither premises nor staff in Luxembourg, and CypCo, which had no
real economic activity and was an artificial arrangement aimed at
concealing the identity of the actual recipient of the
dividends.
Interestingly, it should be noted that the Versailles
administrative Court of Appeals further denied the benefit of the
reduced withholding tax rate provided by the double tax treaty
entered into between France and Luxembourg because the tax
residency affidavits provided by the taxpayer did not contain the
information required by such double tax treaty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
