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

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.

DRAFT AMENDING FINANCE BILL FOR 2014

PAYMENT OF FRENCH-SOURCED DIVIDENDS TO NON-EU FUNDS

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.

MODIFICATION OF THE TAX CONSOLIDATION RULES TO ALLOW FOR HORIZONTAL CONSOLIDATION

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...