The 3% tax on dividend distributions is unconstitutional, the French Constitutional Court has held in a landmark ruling.
The case involving a group led by the AFEP (L’Association française des entreprises privies)—the main professional organisation representing large French-listed companies—challenged a 3% tax on all dividends distributed by entities subject to French corporate income tax, which was introduced in France in 2012.
The group argued that the tax infringed the Parent Subsidiary Directive (the Directive)—a claim confirmed by the European Court of Justice (ECJ) earlier this year. The ECJ ruled that, when levied on redistributions of dividends received from subsidiaries eligible for the participation exemption regime provided for by the Directive, the 3% tax amounted to a deferred corporate income tax of such dividends and therefore infringed the Directive.
The ECJ decision exempted the redistributions of dividends received from subsidiaries established in another member state of the EU only, but the AFEP group successfully argued before the Constitutional Court that this was discriminatory under the equality of treatment principle guaranteed by the French Constitution, and that the exemption should extend to all distributions made by French companies.
The Constitutional Court decision has immediate effect and the 3% tax can no longer apply to future distributions. Taxpayers are entitled to be fully refunded the 3% tax paid for past distributions, which is estimated to total around €8bn.