When dividends originating from subsidiaries located in other member states are redistributed, member states may not tax them when they were exempted from taxation when collected by the parent company, the Court of Justice of the EU ruled in a judgment returned on Wednesday 17 May (case C-365/16).
The French association of private companies (AFEP) went before the French Council of State on the grounds that France levies corporate income tax on a parent company's redistribution of dividends paid to it by a subsidiary located in a different member state. It does so even though the payment of dividends from the subsidiary to the parent enjoys a 95% tax exemption under the 'parent/subsidiaries' directive (2011/96).
Having been referred to in the framework of a preliminary ruling, the Court points out that European legislation aims to avoid the double-taxation of profits for parent companies. It adds that the 'parent/subsidiaries' directive draws no distinction between whether the parent company is taxed when it receives the profit or, at a later stage, when it is redistributed. Additionally, the taxation of profits by the member state of the parent company when the dividends are subsequently redistributed would have the effect of subjecting the dividends to a rate exceeding the fixed upper limit of 5% to cover costs and charges. (Original version in French by Mathieu Bion)