The French rules to fight tax fraud are against EU law, as they are based on an assumption that companies controlled from a third country automatically pursue the objective of tax evasion, Advocate General Juliane Kokott concluded on Thursday 19 January, before the Court of Justice of the EU.
This case (C-6/16) concerns the French company Euro Stockage, a subsidiary of Luxembourg company Enka, which is owned by the Cypriot company Waverley Star Investments, itself wholly controlled by the Swiss company Campsores Holding. The French tax authorities refused to exempt the Luxembourg company from withholding tax, even though French law provides for such an exemption for profits distributed to a parent company established in another member state.
The reason given for this decision was that the exemption would not apply if distributed dividends benefit a company controlled directly or indirectly by a company established in a country which is not a member state of the EU (in this case, Switzerland). The tax authorities may give their agreement only if this company is able to prove that the chain of stake holdings does not aim principally to take advantage of the exemption.
In the view of the Advocate General, this French rule takes things too far. EU law does provide for abuses such as those that may result from stake holding structures which aim solely to take advantage of tax breaks to be banned (Directive 90/435/EEC, 'parent-subsidiary'). However, there has to be solid evidence of the existence of the abuse and the fact of direct or indirect control by an owner established in a third country is not, on its own, solid evidence, she found.
As things stand, therefore, the presumption of tax evasion is too broad in France. This led the Advocate General to take the view that the French rule is in breach of EU law as it restricts the freedom of establishment, because it makes the exercise of this freedom less attractive to companies from other member states. (Original version in French by Jan Kordys)