Non-residents' dividends: withholding tax and refunds
Has a withholding tax been levied on dividends paid to a shareholder, a fund or a UCITS established outside France? EU law and tax treaties strictly regulate this taxation and often open a right to a refund. The Sofina and Santander judgments confirmed situations in which French withholding tax is contrary to the free movement of capital. The firm secures and recovers these amounts.
- Principle
- Withholding tax on dividends paid outside France (French Tax Code art. 119 bis, 2)
- Rate
- Domestic rate (French Tax Code art. 187), often reduced by treaty
- Sofina
- Loss-making non-resident companies: withholding contrary to EU law (CJEU C-575/17)
- UCITS
- Non-resident funds comparable to French UCITS: non-discrimination (CJEU C-338/11)
- Refund
- Litigation claim (Tax Procedure Code art. L. 190), time limits to secure
Withholding tax on outbound dividends
Dividends distributed by a French company to a beneficiary that is not domiciled or established in France are subject to a withholding tax (French Tax Code art. 119 bis, 2). Its domestic rate is set by article 187 of the French Tax Code; it is frequently reduced, or even eliminated, by the applicable tax treaty and, within the European Union, by the parent-subsidiary regime.
This withholding, levied at source by the paying institution, applies to gross income. Where the non-resident beneficiary is in a situation comparable to that of a resident who would be taxed on a net result or exempt, the withholding may create a difference in treatment contrary to EU law.
Sofina, UCITS: non-discrimination
Two lines of case law open rights to a refund:
- Loss-making non-resident companies: under the Sofina judgment (CJEU 22 November 2018, C-575/17), a withholding levied immediately on dividends paid to a loss-making non-resident company, whereas a loss-making resident company would have been taxed only later, or never, disregards the free movement of capital;
- Non-resident UCITS and funds: under the Santander judgment (CJEU 10 May 2012, C-338/11), a foreign fund comparable to an exempt French UCITS cannot bear a withholding that the latter would not have borne;
- Comparability: everything rests on showing that the foreign beneficiary is in a situation objectively comparable to that of a resident.
These principles fuel large-scale litigation, driven by investment funds, insurers and foreign parent companies. Each case requires a fine analysis of comparability and of the regime applicable in the State of residence.
Obtaining a refund of the withholding
Recovering a withholding wrongly levied requires a litigation claim addressed to the tax authorities (Tax Procedure Code art. L. 190), within the claim time limits. The request relies on the treaty, on the parent-subsidiary regime or on EU law, and must be substantiated: proof of the beneficiary's status, of the loss-making situation or of the UCITS status, and of the amounts levied.
Time limits are the main point of vigilance: an old withholding may be time-barred, whereas a protective claim safeguards the years in progress. The treatment of late-payment interest is also open to discussion.
How we assist you
The firm identifies recoverable withholdings, builds the demonstration of comparability under EU law and the treaties, and manages claims and litigation up to the tax court. It acts for funds, insurers, UCITS and foreign parent companies, in coordination with their local counsel and custodians, and secures future distributions in advance.
Withholding tax on dividends: your questions
What is the rate of withholding tax on dividends paid to a non-resident?
The domestic rate results from article 187 of the French Tax Code. It is very often reduced by the applicable tax treaty, and may be eliminated within the European Union by the parent-subsidiary regime. The effective rate therefore depends on the beneficiary's precise situation.
What did the Sofina judgment decide?
Under the Sofina judgment (CJEU 22 November 2018, C-575/17), the Court held contrary to the free movement of capital the withholding levied immediately on dividends paid to a loss-making non-resident company, whereas a loss-making resident company would have benefited from a deferral, or even from no taxation at all.
Can a foreign fund recover the withholding?
Yes, where it is comparable to a French UCITS that would have been exempt (CJEU Santander, C-338/11). The refund requires demonstrating this comparability and complying with the claim time limits.
How can a wrongly levied withholding be recovered?
Through a litigation claim (Tax Procedure Code art. L. 190) based on the treaty, the parent-subsidiary regime or EU law, within the time limits. A protective claim secures the rights during the review.
Within what time limit should one act?
The claim time limits are strict and an old withholding may be time-barred. It is therefore decisive to act quickly and, where appropriate, to file a protective claim for the years not yet time-barred.
A withholding tax to challenge or recover?
A confidential initial consultation to assess the right to a refund under the tax treaties and EU law, and to secure the claim time limits.
This page presents withholding tax on non-residents' dividends for information purposes; each case calls for a specific analysis, treaties and EU law included. References to the French Tax Code, the Tax Procedure Code and the case law of the CJEU in force at the date of writing.