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CJEU Rules French Group Dividend Tax Rule Violates Freedom of Establishment — Orbitax Tax News & Alerts

On 2 September 2015, the Court of Justice of the European Union (CJEU) ruled on an issue referred to the Court by the Versailles Administrative Court of Appeal concerning a French company seeking to deduct the 5% proportion for costs and expenses related to dividends received from subsidiaries established in other EU Member States. This would be allowed for dividends received from a French subsidiary under the French tax integration regime, but not for dividends received from a non-resident subsidiary. The question referred to the CJEU was whether the French tax integration regime was consistent with the freedom of establishment and the corporation tax legislation of the European Union.

In its decision, the CJEU followed the Advocate General opinion on the matter issued in June ({News-2015-06-16/A/4- previous coverage}), finding that the French integration regime is in violation of freedom of establishment and stated the following:

Article 49 TFEU must be interpreted as precluding rules of a Member State that govern a tax integration regime under which a tax-integrated parent company is entitled to neutralisation as regards the add-back of a proportion of costs and expenses, fixed at 5% of the net amount of the dividends received by it from tax-integrated resident companies, when such neutralisation is refused to it under those rules as regards the dividends distributed to it from subsidiaries located in another Member State, which, had they been resident, would have been eligible in practice, if they so elected.

Click the following link for the full text of the CJEU decision.