European Union rules prevail over our domestic laws and must be integrated into the legislation of EU Member States via appropriate adaptations. A decision of the Court of Justice of the European Union (CJEU) recently invalidated French legislation on the taxation of dividends paid within a group. Furthermore, the Council of State aligned with another CJEU decision, the “de Ruyter” ruling, concerning payment of social levies on income from assets.

CJEU ruling of 2 September 2015 in the “Groupe Stéria” case

In this case, a prejudicial question was referred to the CJEU, in the following circumstances: the French company Stéria has holdings of more than 95% in subsidiaries established in France with which it has formed a tax group, as well as in other subsidiaries in the European Union. To avoid double taxation of the income distributed by its subsidiaries, Stéria deducted them from its taxable income, except for a fixed portion of costs and expenses equal to 5% of the dividends received.

However, French law allows this add-back to be deducted in respect of dividends received from fully consolidated subsidiaries, i.e. by definition, French subsidiaries.

Following an appeal before the national courts, the Administrative Court of Appeal of Versailles asked the CJEU whether this rule was compatible with freedom of establishment, one of the fundamental principles of European law.

The CJEU considered that it did restrict freedom of establishment and that no compelling reason of general interest justified such restriction. It thus concluded that by depriving it of the advantage, a parent company owning a subsidiary in another Member State was deterred from establishing subsidiaries in other Member States.

We do not yet know how the French lawmaker will transpose this decision into French legislation. However, a claim may be filed by 31 December 2015 for repayment of corporate income tax paid on costs and expenses incurred in respect of dividends received from foreign subsidiaries in 2012, 2013 and 2014.

CJEU ruling of 2 September 2015 in the “Groupe Stéria” case

The French Council of State had referred a prejudicial question to the CJEU in the “de Ruyter” case. The Council’s ruling of 27 July 2015 confirmed the European jurisprudence in French law.

The question was whether social levies (15.5%) on income from assets were compatible with the principle that a person shall be covered by a single social security system in the EU. Owing to the link that exists between these levies and the financing of certain branches of social security, the CJEU and then the Council of State held that the social levies on income from assets infringed EU law where the person is not affiliated to the social security system in France. This is an extension of community case-law already applying to tax levies on active and replacement income.

A taxpayer covered solely by a foreign social security system cannot therefore be liable for social levies in France (CSG, CRDS and additional contributions) on income from assets. Foreign nationals who are tax residents in France may claim back social levies unduly paid from 2013 to 2015.

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