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the Steria decision of the CJEU continues to raise questions

It took two laws for the French legislator to agree to take into account the effects of the European Steria case law. Have these advances been sufficient? This is the question posed today, via a preliminary question, the Council of State to the Court of Justice of the European Union (CJEU).

I. Steria and the French response

We know that in a Steria decision of September 2, 2015 (Groupe Steria SCA, C-386/14), the CJEU ruled that French law infringed the freedom of establishment on the grounds that it neutralized in the tax consolidation the imposition of the share of costs and charges (QPFC) on intra-group dividends while the receipt of a dividend from a subsidiary established in the European Union and more than 95% owned led to the imposition of a QPFC of 5%.

To comply with this decision, French law was amended in two stages. Article 40 of Amending Finance Law No. 2015-1786 for 2015 initially improved the fate of only companies that are members of an integrated group receiving dividends from subsidiaries established in another EU state or from the EEA having concluded an administrative assistance agreement with France with a view to combating tax fraud and tax evasion, which could be integrated if they were established in France.

Article 32 of Law No. 2018-1317 of December 28, 2018 then supplemented this first reform by deciding, for fiscal years beginning on or after 1er January 2019:

  • that the 1% QPFC rate also applies to distributions received by a company not a member of an integrated group on the basis of a holding (giving right to the parent-daughter regime) in a company resident of a European State (EU or EEA fulfilling the above conditions), when this company is held under identical conditions to a French subsidiary which could have been part of an integrated group.
  • that profit-sharing products not giving rise to the parent-subsidiary regime are deducted from the overall result up to 99% of their amount (which amounts to taxing them on 1% of their amount), for distributions made by a subsidiary that has been a member of the group for more than one financial year. This rule applies to income received by a member company of a group on the basis of a holding held for more than one financial year in a company subject to a tax equivalent to corporate tax in a European State and which, if it were established in France, could be a member of the group and it also applies to profit-sharing received by a non-affiliated company on the basis of a stake in a company subject to a tax equivalent to IS in a European State.

However, these two provisions do not apply when the French company is not a member of a group solely “because of the absence of options and agreements to formulate” in accordance with the rules governing tax consolidation. In practice, a company that only holds “integrable” subsidiaries resident in Europe (or in an EEA State) can benefit from the favorable regime on dividends received from its European subsidiaries, while a company that also has resident subsidiaries ” integrated” but which does not constitute an integrated group cannot benefit from this favorable regime on distributions from its European subsidiaries (nor from its French subsidiaries).

It can therefore be seen that to benefit from the favorable regime on dividends received from a European subsidiary that can be integrated, it is still necessary either to be an integrated company or to be unable to be integrated.

II. The question referred by the Council of State

The case brought before the Council of State by two companies (the Manitou company: CE, June 14, 2022, No. 454107, and the Bricolage Investissement France company: CE, June 14, 2022, No. 458579) was that of a company French company, which has subsidiaries in France and in Europe, which has the possibility of forming a tax consolidation group with its French subsidiaries, but which has not opted for this regime and which considers that it nevertheless has the right to benefit from the aforementioned favorable regime on the products of its “integrable” European subsidiaries. The advantage claimed consisted, at the material time, in neutralizing the share of costs and charges on the proceeds of holdings giving rise to the right to the parent-subsidiary regime. Today the rate of 1% instead of 5% on the QPFC would be claimed, but the basic question remains the same.

The companies obtained satisfaction before the Administrative Court of Appeal of Versailles, and an appeal in cassation was lodged by the Minister before the Council of State.

The question is seen as raising a serious difficulty of interpretation of European Union law. It is in fact a question of determining whether Article 49 of the Treaty on the Functioning of the European Union precludes legislation of a Member State relating to a system of tax consolidation under which a parent company consolidating benefits from the neutralization of the share of costs and charges reinstated on the basis of dividends received by it from resident companies party to the integration as well as, to take account of the aforementioned Steria decision, on the basis of dividends received from subsidiaries established in another Member State who, if they had been residents, would have been objectively eligible, on option, for the integration scheme but who refuses the benefit of this neutralization to a resident parent company which, despite the existence of capital links with other resident entities allowing the formation of an integrated tax group, has not opted to belong to such a group, on the basis of both dividends distributed to it by its resident subsidiaries and those from subsidiaries established in other Member States satisfying the eligibility criteria other than residence. A preliminary question is therefore referred to the CJEU and the Council of State stays ruling on the Minister’s appeal (CE, June 14, 2022, n°458579 SA Bricolage Investissement France and n° 454107 SA Manitou BF).

III. An element of response in the Steria judgment itself?

The question put to the CJEU in the aforementioned Steria decision related to the situation of an integrating mother who received dividends from subsidiaries and more specifically to the legitimacy or not of the difference in treatment which existed in French law depending on whether the subsidiary was resident and integrated or non-resident and therefore not integrated even though it fulfilled all the conditions for being so except that of being a resident.

However, the CJEU, following the conclusions of its Advocate General Mrs Kokott, did not stop at the only question asked, which therefore only related to the situation of the consolidating parent companies, but had laid down the principle according to which “the situation of companies belonging to an integrated tax group is comparable to that of companies not belonging to such a group, insofar as, in both cases, on the one hand, the parent company bears costs and to its participation in its subsidiary and, on the other hand, the profits made by the subsidiary and from which the distributed dividends are derived are, in principle, liable to be subject to economic double taxation or chain taxation ». The Court added that it could not be ” inferred from the X Holding judgment (C-337/08, EU:C:2010:89) that any difference in treatment between companies belonging to an integrated tax group, on the one hand, and companies not belonging to such a group, on the other hand, is compatible with Article 49 TFEU. “. In this X Holding decision, the CJEU had only admitted that the condition of residence could be required to enter an integration group, because this regime allows the transfer of losses within a group.

Tax benefits other than the transfer of losses within a tax group must therefore be examined separately, to determine whether a State can reserve them for integrated companies that are therefore residents and exclude them in cross-border situations. This “case by case” exercise received, with regard to the question of the fate of dividends, a favorable response to taxpayers from the CJEU. Will the attempts of the French State to limit this case law to companies agreeing to set up an integration group (or prevented from setting one) be accepted by the Court? The question remains open. Indeed, in the Steria decision, in view of the quote above, the CJEU seemed to consider that the situation of a parent company which receives dividends is not different depending on whether it is a member of a group of integration or not.

If the CJEU were to conclude that there was no difference between the situation of a mother who is a member of an integrated group and a mother who is not a member of an integrated group and if the French State failed to produce evidence justifying the current difference in treatment, then we would end up with the following situation: a non-integrated French parent, who could have been a member of an integrated group, would benefit from a share limited to 1% on the dividends received from a “integrable” European subsidiary, but 5% on dividends received from a “integrable” but non-integrated French subsidiary

We will therefore await with interest the decision of the CJEU, because the principle that it will lay down regarding the neutralization of the share must, in our opinion, necessarily be extended to the current situation providing for a reduced rate of share of costs and charges. .


Emmanuelle Fena-Lagueny, counsel lawyer in tax law

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