{
"case_information": {
"court": "Council of State (Conseil d'État), 9th - 10th joint chambers",
"case_number": "471147",
"citation": "ECLI:FR:CECHR:2024:471147.20241108",
"applicant": "Foncière Vélizy Rose",
"respondent": "Minister to the Prime Minister, responsible for the budget and public accounts",
"jurisdiction": "France",
"judgment_date": "2024-11-08"
},
"excerpt": "The Council of State dismissed an appeal by Foncière Vélizy Rose against withholding tax charged on a 2014 interim dividend paid to its Luxembourg parent company, holding that the recipient was not the beneficial owner of the dividend for the purposes of Article 119 ter of the General Tax Code.",
"judgment_summary": "Foncière Vélizy Rose (FVR) challenged withholding tax levied on an interim dividend of EUR 3.6 million paid in 2014 to its Luxembourg parent, Vélizy Rose Investment (VRI). The Montreuil administrative court and then the Paris administrative court of appeal both rejected FVR's claims for discharge of the tax or, alternatively, application of a reduced 5% treaty rate.\n\nThe Council of State examined arguments concerning the abuse of rights procedure, freedom of establishment under the TFEU, and the beneficial ownership requirement under both the General Tax Code and the France-Luxembourg and France-Germany tax treaties. It substituted certain grounds relied on by the lower court but ultimately dismissed the appeal in full (paras 1, 10, 16).",
"background": "FVR was the subject of an accounting audit covering the financial years ending 31 December 2013, 2014 and 2015. Following this audit, the tax authorities challenged the exemption from withholding tax that FVR had claimed under Article 119 ter of the General Tax Code in respect of an interim dividend of EUR 3.6 million paid in 2014 to the Luxembourg company Vélizy Rose Investment (VRI), which held the entirety of FVR's share capital (para 1).\n\nVRI received the EUR 3.6 million dividend from FVR on 2 July 2014 and paid the same amount the following day to its own sole shareholder, the Luxembourg company Dewnos Investment, at a time when VRI had no other funds available. VRI had no activity other than holding the shares of FVR (para 4).",
"core_dispute": "FVR sought discharge of the withholding tax, primarily on the basis that VRI qualified for exemption under Article 119 ter of the General Tax Code, and in the alternative that a reduced 5% withholding tax rate under Article 8 of the Franco-Luxembourg tax treaty should apply instead of the 30% rate under Article 187 of the General Tax Code (paras 1, 2, 13).\n\nFVR argued that the tax authorities had implicitly used the abuse of rights procedure under Article L. 64 of the Book of Tax Procedures without affording it the associated guarantees, that Articles 119 bis and 119 ter of the General Tax Code infringed the freedom of establishment under Articles 49 and 54 of the TFEU by treating foreign parent companies differently from French parent companies benefiting from the parent-subsidiary regime under Articles 145 and 216 of the General Tax Code, and that VRI (or, alternatively, the ultimate recipients Dewnos Investment and another person) should be treated as beneficial owner of the dividend so as to benefit from treaty relief (paras 4 to 15).",
"court_findings": "The Council of State held that in concluding VRI was not the beneficial owner of the dividend, the tax authorities had not dismissed any act as unenforceable and had not implicitly applied the abuse of rights procedure, so no failure to provide Article L. 64 guarantees arose. The Paris court's judgment on this point disclosed no error of law and did not distort the facts (para 4).\n\nOn freedom of establishment, the court held, substituting its own grounds for those of the lower court, that the beneficial ownership condition in Article 119 ter is compatible with the objectives of Directive 2011/96/EU as interpreted by the CJEU in Skatteministeriet v T Danmark and Y Denmark Aps (C-116/16 and C-117/16), and that Articles 145 and 216 of the General Tax Code, which transpose the same directive, must be read consistently with those objectives. There was accordingly no unlawful difference in treatment between French and other EU parent companies that are not beneficial owners of the dividends they receive (paras 6 to 9).\n\nThe court further held that the fact that the French distributing subsidiary is liable for the withholding tax is inherent to the taxation technique and has no bearing on the tax status of the non-resident beneficiary, and that grossing up the tax base to reconstitute the gross dividend does not result in an effective rate higher than the corporation tax rate that would apply to a French parent company outside the parent-subsidiary regime (paras 8, 9).\n\nOn the merits, the Council of State found that VRI could not be regarded as the beneficial owner of the dividend, given that it received the funds and paid them on the following day to its own sole shareholder, Dewnos Investment, having no other resources and no activity beyond holding FVR's shares. This finding disclosed no error of law, no reversal of the burden of proof, and no distortion of the facts (paras 4, 11).\n\nThe court also held that the absence of an express beneficial ownership clause in the 1958 Franco-Luxembourg and 1959 Franco-German tax treaties does not prevent the tax authorities from refusing treaty benefits to a recipient who is merely the apparent beneficiary of the dividend, and that such treaties may still apply where the true beneficial owner resides in Luxembourg or Germany even where the dividend passed through an intermediary in a third state (paras 12 to 14).\n\nOn the facts, the beneficial ownership of Dewnos Investment (EUR 360,000) and of another person referred to as "MA.." (EUR 24,192) was apparent from the file, including the rectification proposal of 21 December 2017. However, their tax residence in Luxembourg and Germany respectively, and, for Dewnos Investment, compliance with Article 10 bis of the Franco-Luxembourg treaty, was not established. FVR was therefore not entitled to the reduced 15% withholding tax rate under either treaty (para 15).",
"outcome": "The Council of State dismissed the appeal of Foncière Vélizy Rose in its entirety (para 16, Article 1 of the operative part). It also refused FVR's request for EUR 10,000 in costs under Article L. 761-1 of the Code of Administrative Justice, since the State was not the losing party in the proceedings (para 17, Article 2 of the operative part).",
"tp_method": "",
"major_issues": [
"Whether the tax authorities implicitly applied the abuse of rights procedure under Article L. 64 of the Book of Tax Procedures without granting the associated procedural guarantees, when denying the withholding tax exemption.",
"Whether the beneficial ownership requirement in Article 119 ter of the General Tax Code, as applied to the Luxembourg recipient VRI, was correctly found not to be met given VRI's immediate onward payment of the dividend to its own shareholder.",
"Whether Articles 119 bis and 119 ter of the General Tax Code, in requiring beneficial ownership for exemption, are compatible with the freedom of establishment under Articles 49 and 54 of the TFEU and with Directive 2011/96/EU as interpreted by the CJEU in the Danmark cases.",
"Whether the parent-subsidiary regime under Articles 145 and 216 of the General Tax Code treats French parent companies more favourably than foreign parent companies in a manner contrary to EU law.",
"Whether the absence of an express beneficial ownership clause in the 1958 Franco-Luxembourg and 1959 Franco-German tax treaties precludes the tax authorities from denying treaty relief to a merely apparent beneficiary of a dividend.",
"Whether the alternative claim for the reduced 5% or 15% withholding tax rate under the relevant tax treaties could succeed absent proof of the ultimate recipients' tax residence and compliance with treaty conditions."
],
"tax_categories": [
"Income Tax",
"Beneficial Ownership",
"Tax Administration"
],
"tags": [
"Beneficial Ownership",
"Withholding Tax",
"Article 119 Ter",
"Article 119 Bis",
"Abuse Of Rights",
"Article L. 64",
"Franco-Luxembourg Tax Treaty",
"Franco-German Tax Treaty",
"Freedom Of Establishment",
"Parent-Subsidiary Directive",
"CJEU Danmark Cases",
"Apparent Beneficiary",
"Dividend Exemption",
"Parent Company Regime"
],
"uncertainties": "The reference label describes this as a transfer pricing case, but the judgment itself concerns the beneficial ownership condition for withholding tax exemption on dividends under Article 119 ter of the General Tax Code and related tax treaty provisions; it contains no discussion of transfer pricing methodology, arm's length pricing, or intra-group pricing adjustments, so no transfer pricing content has been included. The exact identity behind the abbreviation 'MA..' is not disclosed in the judgment. The named respondent is inferred from the operative part (notification to the Minister responsible for the budget and public accounts), as no separate respondent party name is given."
}