Exonération de retenue à la source sur dividendes et siège de direction effective

The European Commission is asking France to amend its legislation on the withholding tax exemption on dividends, which relies on a criterion regarding the location of the parent company's seat that does not comply with Parent-Subsidiary Directive 2011/96/EU (letter of formal notice [INFR(2025)4014]).

In principle, dividends paid to persons who do not have their tax domicile or registered office in France are subject to withholding tax at the rate set in Article 187 of the FTC (FTC, Art. 119 bis).

However, Article 119 ter of the FTC, which transposes Article 5 of the Parent-Subsidiary Directive, provides for an exemption, under certain conditions, from the withholding tax provided for in Article 119 bis, 2 of the FTC on dividends distributed by a French company to a European parent company.

To qualify, the company receiving the dividends must in particular show (i) that it has its place of effective management in a Member State of the European Union (EU) or in a State party to the Agreement on the European Economic Area (EEA) that has concluded with France an administrative assistance agreement to combat tax fraud and tax evasion, and (ii) that it is not regarded as having its tax residence outside the EU or the EEA under a tax treaty concluded with a third State (FTC, Art. 119 ter, 2, a).

The Parent-Subsidiary Directive provides that no withholding tax is levied where a subsidiary distributes its profits to its parent company in another Member State, and that these profits are not taxed again at the level of the parent company.

Under this Directive, a parent company means any company which, according to the tax laws of the Member State concerned, is considered to have its tax domicile in that State.

The European Commission states that by requiring, for the withholding tax exemption to apply, that the parent company's place of effective management be located in an EU Member State or in a State party to the EEA Agreement that has concluded with France an administrative assistance agreement to combat tax fraud and tax evasion, France "unilaterally applies its own criteria to foreign parent companies in order to challenge their status and refuse the tax benefits of the Directive".

Consequently, considering that the place of effective management criterion used in French legislation is contrary to this Directive, the European Commission has decided to open infringement proceedings against France. France has two months (i.e. until 11 May 2026) to reply to the letter of formal notice and remedy the shortcomings identified by the European Commission. In the absence of a satisfactory response, the European Commission may decide to issue a reasoned opinion.

Note: French administrative courts of appeal have recently held that the provisions of Article 119 ter of the FTC must be interpreted in the light of those of the Parent-Subsidiary Directive, which they transpose, so that for dividends to be exempt from withholding tax, the company receiving them must in particular have its tax domicile in an EU Member State under the tax laws of that State (CAA Nantes, 7 October 2025, No. 24NT02819, SAS Centigon Holdings France, CAA Paris, 27 January 2026, No. 24PA02158).