France: Dividend Withholding Tax Exemption And Specific Anti-Abuse Provision
In a recent decision (CAA Versailles, July 8, 2015, n°13VE01079), the Versailles Administrative Court of Appeals (CAA) provided an interesting illustration of the operation of the specific anti-abuse provision (i.e., different from the general abuse of law theory) attached to the dividend withholding tax exemption provided, in accordance with the EU Parent-Subsidiary Directive, by Article 119 bis of the French tax code (FTC).
Following an audit performed in 2010, the FTA challenged the withholding tax exemption applied by a French company (FrenchCo) in respect of the dividends it distributed in 2007 to its sole shareholder, a company located in Luxembourg (LuxCo). All of the shares of LuxCo but one were held by a company located in Cyprus (CypCo), itself held by a company located in Switzerland (SwissCo).
Under Article 119 bis of the FTC, the standard 25 percent withholding tax applicable to dividends is eliminated, provided inter alia that the recipient of the dividends is not part of a holding structure that is constitutive of an artificial arrangement whose main purposes is the benefit of the withholding tax exemption.
After confirming that such specific anti-abuse provision complies with EU law freedoms to the extent that it aims at combating tax evasion, the CAA took the position that the burden of the proof attached to the purpose of the holding structure was on FrenchCo (in principle, the burden of the proof falls on the recipient of the dividends, but only where the recipient is a party to the litigation, which was not the case for LuxCo; however, under general French administrative law principles, the burden of the proof is on FrenchCo because it is the only party with actual information in respect of the relevant condition, i.e., the purpose of the holding structure).
As a result, the CAA reviewed the elements provided by FrenchCo and ruled that they were all insufficient to demonstrate that the main purpose of the holding structure was not the benefit of the withholding tax exemption provided by Article 119 bis of the FTC. In order to deny the benefit of the official guidelines published by the FTA in respect of such withholding tax exemption, the CAA further elaborated that the interposition of LuxCo, which had neither premises nor staff in Luxembourg, and CypCo, which had no real economic activity and was an artificial arrangement aimed at concealing the identity of the actual recipient of the dividends.
Interestingly, it should be noted that the Versailles administrative Court of Appeals further denied the benefit of the reduced withholding tax rate provided by the double tax treaty entered into between France and Luxembourg because the tax residency affidavits provided by the taxpayer did not contain the information required by such double tax treaty.
