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New potential opportunity for non-residents to obtain a refund of the withholding taxes they incur in France on services and dividends

October 01, 2021

The French Finance Bill for 2022 provides for the compliance of the French withholding tax regime with EU law.

To take into account recent decisions by the French Supreme Administrative Court[1], and the formal notice given to France by the European Union[2], and to complete the work performed to comply as regards capital gains[3], the legislator intends, as from 1 January 2022, to offer to non-residents the possibility to obtain a refund of withholding taxes levied on remuneration for services and dividends.

For the provision of services, this refers more specifically to the sums paid by a debtor carrying out an activity in France to persons or companies having no permanent professional establishment in France for their activities carried out in France, income from inventors, copyright, services of any kind provided or used in France and sports services [4]. The withholding tax would henceforth be levied on a net flat-rate basis after a 10% reduction.

Artistic performances already benefit from such a 10% reduction as so-called professional expenses [5].
Then, subsequently, if the costs actually incurred are greater than the fixed costs retained, the non-resident beneficiary may obtain an additional refund by way of a contentious claim.

For dividends, only a retrospective refund claim is contemplated.

With respect to an infringement on the free movement of capital, this measure is open to legal entities or bodies established in the European Union, the European Economic Area or a third country. However, a stake in the issuing structure must not confer upon the shareholder the power to participate effectively in the management or control of the distributing company.

The costs to be taken into consideration are those incurred for the acquisition and conservation directly related to this income which would have been deductible if the beneficiary had been established in France.

Lastly, the beneficiary of the dividends must not be able to charge withholding tax under the rules of its State of residence.

Arrangements of the regime are planned for non-resident companies in a deficit position.

This new system, applicable to withholding taxes to be levied as from 1 January 2022, will have to be compatible with the provisions of the tax treaties signed by France and be integrated into the recovery processes often managed by the paying agents.

 

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[1] CE, 11 May2021, n°438135 - Société Société UBS Asset Management Life Ltd relating to withholding taxes borne by life insurance companies, CE dated 22 November 2019, n°423698 - SAEM de gestion du Port Vauban, CE 9 September 2020, n°434364, Société Damolin Etrechy
[2] EU, Press release dated 18 February 2021
[3] Article 244 Bis B of the French Tax Code
[4] Article 182 B of the French Tax Code
[5] Article 182 A bis of the French Tax Code

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