As discussed in previous French Tax Updates (see
June 2014 and
February 2015), the treatment of French source dividends paid
to foreign nonprofit organizations (NPOs) raises
the issue of comparability of NPOs with French nonprofit
organizations. The practical impact of the analysis is that, in the
case of noncomparability, NPOs would not benefit from the treatment
applied to French nonprofit organizations. NB:
Currently, French nonprofit organizations are liable to a 15
percent French corporate tax in respect of French dividends. Under
the prior legislation, applicable to the below case law, French
nonprofit organizations were exempt from taxation in respect of
A US law governed pension plan (USPP) suffered
French WHT at the rate of 15 percent by application of the
US–French treaty. The USPP argued before a French lower court
that it should benefit from the exemption provided to French
nonprofit organizations given their similarities. The lower court
decided in favor of the USPP (TA Montreuil, December 16, 2014,
n° 1207668) by using the below reasoning:
The relevant provisions of the European Union law provide for
the principle of free movement of capital, including with
In its Santander decision, the EUCJ decided that, for
purposes of comparing the different tax treatments applied to
different persons, only the pertinent criteria should be taken into
account to establish whether such differences reflect an objective
difference of situations.
The exemption provided to a French nonprofit organization is
based on the criteria that its management is not driven by
profit-making objectives, and that its nonprofit activities are
The application of the 15 percent French WHT to the USPP is
valid only to the extent its activities are not comparable with
those of the French nonprofit organization.
The USPP is a pension plan trust within the meaning of section
401(a) of the Internal Revenue Code and, as such, is exempt from
tax in the US; under article 18 of the US–French tax treaty,
a 401(a) plan is generally considered to be recognized as such in
France, i.e. it is managed for the exclusive benefit of the
relevant employees, and the management of the plan does not benefit
from any profit made within the plan.
Thus, the USPP should be viewed as providing services which are
identical to those provided by a French pension plan.
Therefore, the difference of tax treatment is not justified by
an objective difference of situation, and the French WHT should not
The decision of the lower court confirms that the comparability
of French and non-French nonprofit organizations should not be
based on the detail of the rules applicable in French domestic case
law (e.g. the maximum remuneration of the managers, etc.); rather,
as per the Santander case, only the "pertinent
criteria" should be used for purposes of the
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.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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