Taxpayer in loss position may not carry forward unused foreign tax credits

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


The French Administrative Supreme Court confirmed on 8 March 2023 that a corporate taxpayer in a loss position may not carry forward unused foreign tax credits to a subsequent tax year and that the credits are definitively lost (Conseil d’Etat, 8 March 2023, n°456349, available in French only).

As a reminder, under French tax law, a French company may not deduct foreign withholding taxes paid in accordance with a tax treaty from its corporate income tax base in France—even if the company is in an loss position. The French Administrative Supreme Court has ruled that foreign tax credits that cannot be used because a taxpayer is in a loss position are not refundable by the French Tax Administration (Conseil d’Etat, 27 June 2016, n°388984 and n°392534). The Constitutional Court has ruled that the fact that unused foreign tax credits may not be carried forward is not contrary to the French Constitution (Constitutional Court, 28 September 2017, n°2017-654 QPC).

In the case at hand, French companies who are members of a tax consolidated group received various types of foreign-source passive income from several jurisdictions that had been subject to withholding taxes in the source jurisdiction. As the group was in a loss position, the head of the tax consolidated group did not pay any tax and could not make use of the foreign tax credits attached to the passive income as provided in the applicable tax treaties. The group claimed that the unused foreign tax credits should be carried forward and offset in subsequent taxable years, arguing that the purpose of tax treaties is to eliminate double taxation and that unless the carry forward were permitted, this could not be achieved.

The French Administrative Supreme Court confirmed that is not possible to carry forward unused foreign tax credits under:

  • French tax law (decision of the Constitutional Council, 28 December 2017).
  • The applicable tax treaties (in the case at hand, these were the treaties concluded between France and each of Argentina, Australia, Brazil, Cameroon, Canada, China (PRC), Italy, Japan, Korea (ROK), Morocco, New Zealand, Poland, Portugal, Turkey, and the United Kingdom), in the absence of any provision expressly allowing unused tax credits to be carried forward.
  • European law (the free movement of capital principle).

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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 […]

Clara Maignan

She joined Deloitte Société d’Avocats (French law firm of the Deloitte network) in 2011. She is a director in the Knowledge Management department.