Supreme administrative court rules on foreign tax credits for certain capital gains

The French Supreme Administrative Court (Conseil d’Etat) canceled on 15 November 2021 the French tax authorities’ (FTA) guidelines denying a tax credit in France for the amount of foreign tax paid under a tax treaty on capital gains derived from the sale of qualifying shareholdings (CE, n°454105).


A participation exemption regime applies to a French resident company that realizes a long-term capital gain on the sale of shares in a company if it has held at least 5% of the share capital of the company for at least two years (88% is exempt while 12% is taxable).

Pursuant to the FTA guidelines, foreign withholding tax paid in accordance with a tax treaty on such capital gain may not be credited in France as the FTA considers that the 12% “add-back” does not result in taxation of the capital gains and that no double taxation arises (BOI-IS-BASE-20-20-10-20, sections 180 and 190).

Decision of the Conseil d’Etat

The court ruled that the 12% “add-back” must be seen as a way to tax capital gains at a reduced rate rather than a means of neutralizing the deduction of expenses incurred for the purpose of acquiring/sustaining a tax-exempt income.

As a result, double taxation can be established, and foreign tax paid on the capital gains may be credited against French corporate income tax.

The court concluded that the FTA guidelines are illegal and must therefore be annulled.

Refund claims 

Based on this decision, subject to certain conditions, French companies that did not claim foreign tax credits on capital gains taxed in France for substantial participations held for at least two years are entitled to claim a refund of part of the unused foreign tax credit. Because of the statute of limitations, some claims must be filed with the FTA before 31 December 2021.

Sophie Tardieu

Sophie Tardieu is a partner in the international tax department of Deloitte Société d’Avocats. With over 25 years’ experience in corporate taxation, Sophie advises French and foreign multinational companies in […]

Thomas Perrin

Thomas Perrin, Partner, specializes in international tax. He has been involved in many transactions for international French and foreign groups. In 2004, he created the R&D department as well as […]

Nathalie Aymé

Nathalie Aymé, Partner, specializes in domestic and international tax law. She regularly advises French and international companies especially in the manufacturing and the telecom & technology sectors. She assists her […]

Grégoire Madec

Grégoire Madec, Partner, has over 20 years of experience in corporate tax. He mainly assists multinational groups in the definition of their tax strategy as well as in the management […]

Alice de Massiac

Alice de Massiac, Partner, has developed extensive expertise in supporting major French and foreign multinational companies, both in consulting and tax controversy, anticipating the impact of the proposed recommendations in […]

Sandrine Rudeaux

Sandrine offers her clients essential expertise in tax litigation in a rapidly changing national and international tax environment. Former magistrate at the Administrative Court of Appeal of Versailles, Sandrine Rudeaux, […]