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Neutralisation of the 5% lump sum?
Dividends received by a parent company from its subsidiaries are exempt from corporate income tax, under deduction of a 5% lump sum of dividend received, however the provisions governing the tax consolidation regime do not allow the inclusion of a subsidiary established in another Member State. Taxand France takes a look a potential change in regulation.
With the current state of French law, the provisions governing the tax consolidation regime do not allow a consolidated tax group to include a subsidiary established in another Member State of the European Union, even though this subsidiary meets the conditions to be a member of the consolidated tax group if it was established in France.
Consequently, the 5% lump sum recorded by a French company in respect of dividends received from a subsidiary established in another Member State of the European Union is not neutralised.
The Court of Justice of the European Union already had the opportunity to clarify that a tax consolidation regime was not against the European Union’s law in that it allows a parent to create a consolidated tax group with a resident subsidiary, but denies the creation of such a group with a non-resident subsidiary which is not taxable in the Member State of the parent.
The Administrative Court of Appeal of Versailles referred question to the Court of Justice of the European Union about the compatibility with the freedom of establishment. However, the Court of Justice has not yet taken a decision on the compatibility with EU law of the provisions about the neutralisation of internal operations under the tax consolidation group, which are excluded for the operations of companies’ members of this group with subsidiaries in other Member States of the European Union.
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Waiting for CJEU’s decision concerning the referred question submitted by the Administrative Court of Appeal of Versailles, it is recommended to French parent companies which have received dividends from subsidiaries established in other Member States of the European Union to claim, before 31 December 2014, for repayment of the taxes they have paid on the 5% lump sum related to dividends received from subsidiaries owned, directly or indirectly, at least at 95% in the years 2011, 2012 and 2013.