Royalties and services: the withholding tax of article 182 B
Does your group pay royalties, fees or service remuneration to an entity established outside France? Article 182 B of the French Tax Code subjects these sums to a withholding tax, the base and rate of which are open to discussion in light of tax treaties and European Union law. Reassessments often concern flows that are wrongly characterised or insufficiently documented. The firm secures the payments and defends against the reassessments.
- Principle
- Withholding tax on sums paid to non-residents (French Tax Code art. 182 B)
- Scope
- Royalties, rights, services used or rendered in France
- Rate
- Domestic law 25% (art. 182 B, referring to art. 219, I para. 2); 75% to a NCST; reduced by treaty
- Exemption
- Intra-EU royalties between associated companies (French Tax Code art. 182 B bis)
- Risk
- Reassessment of the debtor, who bears the withholding tax that was not levied
The scope of the withholding tax of article 182 B
Article 182 B of the French Tax Code subjects to a withholding tax certain sums paid by a debtor carrying on an activity in France to individuals or companies that have no permanent professional establishment there. This notably covers royalties and similar rights, as well as the remuneration of services of any kind supplied or used in France.
The characterisation of the flow is decisive: the same sum may fall within royalties, within a supply of services, or escape the withholding tax depending on where the service is rendered or used. It is on this ground that most disputes arise.
Rates, treaties and exemptions
The rate and extent of the withholding tax are read at three levels:
- Domestic law: the rate is 25%, provided by article 182 B by reference to the second paragraph of I of article 219 of the French Tax Code; it is reduced to 15% for the remuneration of sports services (d of I of article 182 B);
- Increase for a NCST: the rate is raised to 75% for sums paid to a non-cooperative State or territory, unless the proof to the contrary provided for by the legislation is furnished;
- Tax treaties: they often cap the rate applicable to royalties, or even remove it, and allocate the right to tax;
- Intra-EU exemption: royalties paid between associated companies of Member States may be exempt (French Tax Code art. 182 B bis), subject to conditions of holding and of the beneficial owner's status.
The concept of beneficial owner and the economic reality of the foreign recipient are at the heart of audits: an interposed structure without substance may lead to the loss of the benefit of the reduced rate or of the exemption.
The frequent audit focus points
The tax authorities concentrate on outbound flows that are poorly identified or insufficiently documented: recharacterisation of a service as a royalty, challenge to the place of use, questioning of the treaty rate for lack of supporting documents (residence certificate, beneficial-owner status), or the absence of withholding tax where it was due. The reassessment then falls on the debtor established in France, who is required to levy and remit the withholding tax, and who bears the charge if the debtor failed to do so.
Securing and defending
Upstream, the firm characterises the flows, checks the applicable treaty rate and gathers the documentation (residence, beneficial owner, conditions of the intra-EU exemption). During an audit, the defence bears on the characterisation of the sum, the place of use or performance of the service, the application of the treaty and of article 182 B bis, and on the penalties. The firm brings the litigation before the tax court and coordinates the defence with the group's foreign advisers.
Withholding tax 182 B: your questions
Which sums are subject to the withholding tax of article 182 B?
Mainly royalties and similar rights, as well as the remuneration of services supplied or used in France, paid to recipients that have no permanent professional establishment in France.
Can the rate be reduced?
Yes. The domestic-law rate is 25% (provided by article 182 B, by reference to the second paragraph of I of article 219 of the French Tax Code), reduced to 15% for sports services and raised to 75% to a non-cooperative State or territory. It is frequently reduced, or even removed, by the applicable tax treaty; intra-EU royalties between associated companies may in addition be exempt (French Tax Code art. 182 B bis), subject to conditions.
Who bears the reassessment in the event of an audit?
The debtor established in France, required to levy and remit the withholding tax. If the debtor failed to do so, the debtor bears the charge, together with penalties where applicable.
How can the application of a treaty rate be secured?
By gathering the required documentation: residence certificate of the recipient, demonstration of its beneficial-owner status and of its substance, and compliance with the conditions of the intra-EU exemption where applicable.
Is a service rendered abroad subject to the withholding tax?
It all depends on the place where the service is rendered or used and on its characterisation. This is precisely the ground for discussion: a case-by-case analysis is essential.
A reassessment based on article 182 B?
A confidential initial consultation to characterise the flows, check the treaty rate and the intra-EU exemption, and organise the defence.
This page presents the withholding tax of article 182 B for information purposes; each matter calls for a specific analysis, including tax treaties and Union law. References to the French Tax Code in force at the date of drafting.