No portion of costs and expenses on dividends for european subsidiaries over 95%

September 4th 2015

Further to the Advocate General Kokott’s opinion submitted last June in the Steria case, the EU Court’s ruling was eagerly awaited.

As per the Advocate General’s motion, the ECJ has ruled [1] that the tax integration regime which reserves to French companies only the benefit of a full exoneration of the dividends paid between companies members of the same integration, whereas dividends received from subsidiaries over 95% when residing in another member State are taxed up to a portion of 5%, is incompatible with the freedom of establishment.

The Court has considered that this difference in treatment instated between dividends of national origin and cross-border dividends is justified neither by the necessity of preserving a balanced allocation of taxing powers between member States, nor by the one of safeguarding the French tax system’s consistency.

Practical reach of the Steria ruling

This decision directly interests French parent companies receiving dividends from subsidiaries which are located in other EU member States, are subjected to a corporate tax in the country of location and are held at over 95%.

The companies receiving, in the same conditions, dividends from subsidiaries located outside the EU should not be able to invoke this decision. Indeed, when concerning relations between the EU and third countries, only an unjustified barrier to the free movement of capital (art. 63 TFEU) may allow to invalidate a national legislation.

In this particular case, the Court has approached the problem exclusively as to freedom of establishment considering the conditions set under the French legislation (a 95% share implying a power of decision over the subsidiary).

In practice, a claim filed before December 31st, 2015 may include the portion relating to the dividends of years 2012 et sq.

Clément Resta

[1] EUCJ, September 2nd, 2015, case no. C-386/14, Groupe Stéria SCA.