French Constitutional Court Outlaws Surtax
Wednesday, October 11, 2017
France's surtax on profit distributions has been ruled unconstitutional, in a decision issued by the Constitutional Court on October 6.
The three percent surtax on dividend distributions and deemed dividend
payments has been effective since September 1, 2012, and applies to companies
that are subject to French corporate income tax, although distributions made
between companies within a group are exempt.
In March 2015, the European Commission started an infringement proceeding
against the surtax on dividend distributions on the basis that it contravenes
EU law, and in May 2017, the European Court of Justice ruled that the surtax
is incompatible with the EU Parent Subsidiary Directive.
In that case, the ECJ said that member states may not subject a parent company
to a tax burden on profits received from its EU subsidiaries that exceeds taxation
of five percent of the profits distributed by the subsidiary, which is the maximum
level laid down by the Parent Subsidiary Directive.
Under French law, dividend redistributions received from an EU subsidiary are
subject to a total tax burden that is higher than the maximum ceiling permitted
by the directive when the three percent surtax is applied.
Following the ECJ's ruling, the French Supreme Court asked the Constitutional
Court to determine under which situations redistributions of dividends received
from a French or non-EU subsidiary would still fall within the scope
of the surtax.
However, in its ruling, the Constitutional Court said that differing treatment
could not be justified and ruled that the surtax is unconstitutional
under the equality principle.
An amendment to repeal the surtax, effective from the date of the Constitutional
Court's ruling, has been included in the 2018 Finance Bill.