French WHT on dividends paid to foreign investment funds

France has provided for an exemption of French withholding tax on dividends paid to foreign investment funds since 17 August 2012 which is applicable to all dividends paid after that date. To benefit from this exemption, the investment fund must be located in an EU Member State or in a State or territory that has entered into an administrative assistance agreement with France in view of fighting against tax fraud and evasion and must meet the following two conditions:

• the investment fund raises capital from a certain number of investors, with a view to invest in accordance with a defined investment policy for the benefit of those investors.
• the investment fund shows characteristics similar to those of the following French Undertakings for Collective Investment (UCIs): OPCs (Sicav and FCP), OPCIs (Sippicav and FPI) and SICAFs.

A tax guideline was issued relating to the WHT exemption, amended several times.

French WHT on dividends paid to non EU/EEA investment funds

The above cited tax guideline indicates that UCIs located outside the EU/EEA would not be allowed to benefit from the immediate exemption but would need to file a claim and provide the French Tax Authorities with appropriate documentation evidencing their comparability to French UCIs.

In August 2020, the guideline has been once again amended; it now details the list of the documents required for establishing the comparability.

In August 2020, we obtained the first refunds from the French Tax Authorities for US RICs. The FTA now request the following documents, i.e. the Form N-CEN, the Form N-1A including the prospectus and the statement of additional information, the declaration of trust, the articles of association, the by-Laws, the registration number with the SEC, the investment advisory and service agreement, the custody agreement, the identity information of the custodian, the registration number of the management company and the name of the auditor.

Sofina case law: French WHT on income paid to foreign loss making companies

Further to the Sofina decision of the European Court of Justice, the French law has been amended. Foreign companies in a tax loss position may obtain the temporary restitution of WHT. This restitution is subject to a tax deferral which ends if the company returns to a profitable situation (article 235 quater of the FTC).

For the tax reclaims filed on the basis of Sofina, questions have been raised by the French Tax Authorities about the proof of the tax loss position. Difficulties arose for German loss making companies that cannot produce their final and approved version of their CIT returns.

French procedure applicable to WHT tax reclaims

According to the Administrative Court of Appeal of Versailles dated 27 February 2020 (n°19VE00738), a distinction according to the author of the claim should be made – a two-year time limit applies when claims are filed by the paying agent whereas the one-year time limit applies when the claim is filed by the beneficiary of the distribution.

The Conseil d’Etat rendered an opinion on 21 October 2020 (n°443327) by ruling that there is no reasonable time limit to respect for bringing the case before the court in presence of an implicit rejection from the FTA.

If you wish to discuss these topics, please contact: FIDAL France, Paris

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