Tax consolidation: Steria does not extend to dividends paid by non-EU companies

This article was first published on Tax@Hand, and is reproduced on this blog with the authorization of its authors.


In two decisions issued on 14 April 2022 (n° 19VE03912 and n° 19VE03926), France’s Versailles administrative court of appeal refused to extend the Steria case law to dividend distributions from companies located outside the EU.

Under French law, dividends eligible for the participation exemption (parent-subsidiary regime) are tax exempt, with the exception of a 5% lump sum added back to the taxable result.

For fiscal years open before 1 January 2016, this 5% add-back was neutralized within tax consolidated groups, i.e., dividends distributed within the group, which could be comprised only of French companies, were exempt from tax. Then, in September 2015, the Court of Justice of the European Union (CJEU) ruled that the fact that dividends received from subsidiaries established in other EU member states were not eligible for the same benefit violated the freedom of establishment principle in the Treaty on the Functioning of the European Union (TFEU) (CJEU, 2 September 2015, C-386/14, Groupe Steria).

As a result, for fiscal years open as from 1 January 2016, the add-back lump sum has been reduced to 1% (i.e., 99% dividend distribution exemption) for:

  • Dividends paid within a tax consolidated group; and
  • Dividends paid by a subsidiary located in an EU/EEA country that would meet the conditions required to belong to a tax consolidated group if it were located in France.

In the two April 2022 cases, the Versailles administrative court of appeal refused to extend the scope of the Steria decision.

First, the court ruled that the refusal to neutralize the 5% lump sum add-back for dividends received from non-EU subsidiaries does not constitute a discriminatory measure contrary to the right to the respect of property found in article 1 of the Protocol to the European Convention on Human Rights and article 14 of the convention.

The court also ruled that the refusal to neutralize the 5% lump sum add-back for dividends received from non-EU subsidiaries is compatible with the EU’s parent-subsidiary directive (PSD) and does not breach the principle of equality found in articles 20 and 21 of the Charter of Fundamental Rights of the European Union.

In that sense, the court reminded the claimants that the extension of the neutralization to EU companies that meet the criteria of a tax consolidated group, consistent with the Steria case law, is justified under the TFEU’s freedom of establishment principle. It also stated that this extension to EU companies does not call into question, in light of the PSD, the measure’s initial objective, which should be reserved to companies that are part of a tax consolidated group (as opposed to being extended to all EU companies benefiting from the PSD regime). Consistent with these findings, the Versailles court also rejected the claimants’ argument that the neutralization should extent to non-EU subsidiaries based on the free movement of capital provided in article 63 of the TFEU.

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 […]

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 […]

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 […]

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 […]