The European Commission has asked France to abolish a withholding tax (WHT) that applies to dividends received by non-resident companies.
The WHT applies to dividends received in France by companies based in other EU or EEA member states. The Commission said the WHT leads to immediate taxation, without the possibility of a refund of the dividends paid to an EU and/or EEA company in two situations: when the company is in structural deficit, when the company is in a temporary-loss making phase.
The Commission explained that French companies do not pay the tax when in a similar position of structural deficit. When in a temporary loss-making phase, French companies are subject to taxation only when they return to surplus.
According to the Commission, by applying the WHT in this manner, France is failing to fulfil its obligations on the free movement of capital.
France amended the legislation at the end of 2015, but the change applies only to non-resident companies facing both deficit and liquidation.
If the French authorities fail to respond to the Commission's request within two months, the case may be referred to the Court of Justice.