France: French Tax Update - Draft Amending Finance Bill For 2014 And Noteworthy S2 Publications

Last Updated: 9 December 2014
Article by Nicolas André

The present French Tax Update will discuss (i) the Draft Amending Finance Bill for 2014 (Projet de loi de finances rectificative pour 2014, 2014 PLFR) that is currently being discussed before the French Parliament (in addition to the Draft Finance Bill for 2015 (Projet de loi de finances pour 2015), (ii) noteworthy case law decisions recently issued by French tax courts, (iii) recent developments in respect of the double tax treaties entered into between France and each of China and Luxembourg, and (iv) filing obligations in respect of certain trust arrangements.



The 2014 PLFR proposes the introduction of a new provision which should enable certain non-EU funds to be eligible for the non-application of French withholding tax (WHT) to French-sourced dividends. The current position of the French tax authorities (FTA) is that only certain EU funds which are similar to French funds and which meet certain filing requirements are entitled to receive gross French dividends (or to obtain the refund of any French WHT).

The proposed provision would introduce a new rule whereby the same treatment would apply to non-EU funds if the provisions of an applicable international tax treaty signed with France effectively enables the FTA to obtain, from the relevant authorities of the jurisdiction where the non-EU fund is located, certain information with which to verify whether the fund is eligible or not for the exemption from the WHT on French-sourced dividends.


On June 12, 2014 (joined cases C 39/13, C 40/13 and C 41/13, SCA Group Holding BV and others), the European Union Court of Justice (EUCJ) ruled that the Dutch tax consolidation (fiscale eenheid) regime had to be amended as its exclusion of horizontal structures (e.g., two Dutch companies held by a non-Dutch company) constituted a restriction to the EU law freedom of establishment.

Although a French lower administrative court did not share such analysis (Cergy-Pontoise, October 3, 2012, n°1102790, Sté Zambon France), the French consolidation regime is in essence similar to the Dutch on this point. As a result, the French government decided to modify the French tax consolidation regime, and the 2014 PLFR contains several provisions which aim at allowing horizontal structures (e.g., two French companies held by a non-French company) to constitute a French tax consolidation group.

According to the draft proposal, several conditions would have to be complied with in order for two French sister companies to form a French tax consolidation group whilst their parent is a non-French company. Inter alia, it would be necessary for such parent company to be located in either a Member State of the EU, Iceland, Liechtenstein or Norway. Other usual conditions to be complied with in order to form a French tax consolidation group would also have to be complied with (e.g., the 95% holding threshold should be satisfied by all relevant companies, the parent company should not be held by a company that could itself be the head of a French tax consolidation group).

It should be noted that the non-French parent company will however not be able to elect to be the head of the French tax consolidation group. In its current form, the draft proposal indeed provides that one of the eligible French subsidiaries should be the head of the French tax consolidation group. Specific attention should consequently be paid to the choice of such head, as the French tax consequences attached thereto may be substantial (e.g., in case of an exit of the consolidation group, or in respect of intragroup reorganizations).

Additional provisions moreover adapt the specific rules which may apply under the French tax consolidation regime (e.g., so-called Charasse amendment, tax treatment of intragroup reorganizations, neutralizations and de-neutralizations of certain transactions), and provide for filing obligations which appear to be more burdensome than those applicable to standard French tax consolidation groups.

The proposed provisions would apply to fiscal years ended as from December 31, 2014. For prior fiscal years, relevant horizontal structures which have not been able to form a French tax consolidation group may nevertheless claim a refund of the relevant taxes on the basis of the EUCJ decision (e.g., claims for fiscal year 2011 would have to be filed before December 31, 2014).



Under the relevant French tax rules, when a French corporate taxpayer receives dividends in respect of its eligible participations in its subsidiaries, the dividends are 95% exempt (95% Exemption). An eligible participation represents at least 5% of the share capital (5% Threshold) and is held for a minimum period of two years; the non-voting shares are also entitled to the 95% Exemption to the extent the holding entity owns at least 5% of the share capital and of the voting rights.

In a decision dated November 5, 2014 (CE, November 5, 2014, n°370650, société Sofina), the Conseil d'Etat has shed more clarity on the meaning of the 5% Threshold. A Belgian entity holding a participation of 5% in the share capital of a French entity, but only 3.63% and 4.29% of its voting rights in two successive years, had requested that the relevant dividends not be liable to any French WHT.

Indeed, further to the Denkavit decision (EUCJ, December 14, 2006, C-170/05, Denkavit Internationaal BV), the FTA had agreed that, under certain circumstances, EU entities receiving French-sourced dividends should be exempt from the French WHT to the extent they would have been entitled to the 95% Exemption if they were French entities.

In this case, where the Belgian entity was holding less than 5% of the voting rights in the French entity, the FTA took the position that the 5% Threshold was not met, i.e., it should be understood as including at least 5% of the voting rights.

The Conseil d'Etat decided to uphold the position of the taxpayer by taking the view that no provision of the French tax code provides that the 5% Threshold should correspond also to a minimum 5% holding of the voting rights.

The current position may be then summarized as follows:

  • if the holding entity is receiving dividends in respect of voting shares, the ownership of 5% of the share capital is enough for the application of the 95% exemption, and no minimum voting rights is necessary;
  • if the holding entity is receiving dividends in respect of non-voting shares, the 95% Exemption is applicable only if it owns at least 5% of the share capital and of the voting rights.


A French entity had been holding 98.2% of the interest in a general partnership (GP) based in Delaware which, in turn, had owned more than 10% of the share capital of a US corporation. The French entity had taken the position that the dividends distributed by the US corporation, through the GP, should be eligible for the 95% Exemption. The FTA took the view that the 95% Exemption is not available when the relevant participation is held through a partnership.

The Conseil d'Etat, in a very recent decision (CE, November 24, 2014, n°363556, Artémis SA), sided with the FTA by taking the view that the 95% Exemption is based on a direct participation in the entity distributing the relevant dividends.

Given the fact that the GP would be assimilated to a transparent French partnership, rather than to a French corporation taxed on a stand-alone basis, the Conseil d'Etat took the view that the intermediation of the GP prevented the application of the 95% Exemption.

The Conseil d'Etat further took the view that Article 7 of the double tax treaty dated August 31, 1994 entered into between France and the United States (Treaty) may not be interpreted as enabling a French entity to look through a US partnership for the purposes of application of the 95% Exemption.

Article 7.4 of the Treaty provides that a partner in a partnership should be deemed to realize directly the underlying income generated by the partnership. The Conseil d'Etat took the position that this article should be interpreted only as enabling France to tax the dividends in the hands of the French entity which receives the dividends through the GP, and rejected the interpretation that the French entity should be deemed to receive directly such dividends (in which case the 95% Exemption would have been available).


A Luxembourg company (LuxCo) sold to a French company (FrenchCo) the shares it held into 7 Luxembourg companies (HoldCos), which in turn held 7 French real estate partnerships (sociétés civiles immobilières, PropCos), which in turn held real estate assets located in France.

FrenchCo subsequently wound up, under the French law TUP mechanism (transmission universelle de patrimoine, TUP, i.e., a form of dissolution that does not entail the liquidation of the dissolved entity), the 7 HoldCos, and then the 7 PropCos.

Prior to their wind-up, the 7 PropCos had performed a free revaluation of their assets (thereby giving rise to a gain amounting to the difference between the fair market value of the relevant real estate assets and their respective net accounting value).

Pursuant to the TUPs of the PropCos, the shares of the PropCos were written off the balance sheet of FrenchCo (which had received such shares pursuant to the TUPs of the HoldCos). For such purposes, FrenchCo applied the adjustments known as the Quemener adjustments (named after a Conseil d'Etat decision dated February 12, 2000, and pursuant to which capital gains arising from the disposal of shares into a French flow-through partnership must be adjusted by the profits/losses previously taxed/deducted, so that the neutrality of the tax regime applicable to flow-through partnerships is maintained).

As a result, FrenchCo (i) increased the acquisition price of the PropCos shares by the sum of (a) their taxable income (including the gain resulting from the free revaluation mentioned above) and (b) the losses arising from the TUPs of the HoldCos, and (ii) decreased such acquisition price by the amount of the profits arising from the TUPs of the PropCos.

The FTA first challenged the sale of the HoldCos to FrenchCo on abuse of law grounds. The lower tax court (Paris, July 18, 2012, n°1105856, Lupa Patrimoine France) however ruled in favor of the taxpayer.

Before the administrative court of appeal, the FTA dropped the abuse of law challenge to rather claim that the Quemener adjustments were not applicable in the contexte of a TUP. Such claim seemed somewhat surprising as the FTA has since considered, in a published ruling (2007/54/FE) subsequently incorporated within their official guidelines (Bulletin Officiel des Finances Publiques-Impôts), that the Quemener adjustments are applicable in the context of a TUP.

The administrative court of appeal (CAA Paris, February 18, 2014, n°12PA03962, min. c/ Sté Lupa Patrimoine France) rejected the FTA's claim, ruling that the gain resulting from the free revaluation mentioned above did give rise to taxable income in the hands of FrenchCo, and, as such, should increase the acquisition price of the PropCos shares pursuant to the Quemener case law. The FTA formed an appeal before the Conseil d'Etat.

Interestingly, it should be noted that this decision implicitly validates the application of the Quemener case law within an international context.


In another February decision (CE, February 12, n°358356, M. et Mme B), the Conseil d'Etat confirmed that an irregular option for a specific tax regime may not be invoked by the FTA towards the taxpayer who made such option, notwithstanding the so-called appearance theory (théorie de l'apparence).

In the case at hand, a family-owned French limited liability company (société à responsabilité limitée, SARL) opted to be treated as a flow-through partnership for tax purposes (such option being only open to SARLs that are family-owned). In order to be valid, such option had to be signed by all the shareholders. However, the option sent to the relevant tax office was signed by one shareholder only.

Being formally irregular, the option was not valid. The FTA considered that it was nevertheless binding on the signing shareholder. Prior case law (Dijon, February 6, 1996, n°93-6907, Muller) already made clear that non-signing shareholders could not be bound by an irregular option; the situation of the signing shareholder was however unclear.

The Conseil d'Etat ruled that an irregular option may not be invoked by the FTA, be it towards non-signing or signing- shareholders, inter alia because the signature of all shareholders is a condition of the validity of the option. Interestingly, the Conseil d'Etat thereby rejected the appearance theory that was put forward by the FTA on the ground that such theory does not apply to tax options which, although irregular, are expressly communicated to the FTA.

Such decision should therefore clarify the treatment applicable to certain tax options that were irregularly made.



A specific bill dated November 26, 2014, has ratified the double tax treaty signed by the People's Republic of China and France on November 26, 2013 (New DTT), which will replace the former treaty signed on May 30, 1984.

The New DTT was to become effective as from 1st January of the year following that in which the ratification procedures in each France and China have been completed. To the best of our knowledge, such reciprocal notification has been carried out on November 28, 2014, so that the New DTT should enter into force as from January 1, 2015.

We will comment the provisions of the New DTT in greater details in a future publication. 


On September 5, 2014, the Ministers of Finance of France and Luxembourg signed an amendment (Amendment) to the double tax treaty entered into between France and Luxembourg on April 1, 1958, as amended by the 1970 exchange of letters and by the 1970, 2006, and 2009 protocols.

Pursuant to Article 2 of the Amendment, the new provisions would only enter into force on the first day of the month following the completion of the reciprocal notification process attached to its ratification in each of France and Luxembourg. Further, for taxes on income that are withheld at source (i.e., such as the 33.33% withholding tax applicable under French tax law to capital gains realized by nonresident entities upon the disposal of French real estate assets or companies), the Amendment would apply to amounts that are taxable after the calendar year during which it enters into force.

The Government of Luxembourg has announced that the ratification process under Luxembourg law will take place during the first months of 2015. As a result, the Amendment will not enter into force on January 1, 2015, and aforementioned withholding taxes should thus be applicable only as from January 1, 2016 at the earliest.


A decree 2014-1372 dated November 17, 2014 on filing obligations attached to trust arrangements managed by French-resident trustees outlines the consequences of the extension of existing filing obligations attached to trust arrangements whose settlor and beneficiaries are not French resident and whose assets are not located in France but which are managed by a French-resident trustee (pursuant to the 2013 Bill against tax fraud and economic crime).

Such decree provides that any such French-resident trustees must declare, before January 31, 2015, (i) any settlement, modification or dissolution of a relevant trust arrangement between December 8, 2013 and December 31, 2014, and (ii) the market value as at January 1, 2014 of the assets held through the relevant trust arrangement.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nicolas André
Events from this Firm
13 Dec 2017, Seminar, Cleveland, United States

Jones Day partners Harold Gordon and Tony Dias, and Associate Courtney Snyder will explore the significant role New York's Attorney General and its Department of Financial Services (DFS) play in the financial services industry and why these two state-level agencies will continue to exert significant power over the financial services industry, especially with federal oversight potentially shrinking.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions