French General Tax Code
In forceI. - 1. Where a legal entity established in France and liable for corporation tax operates a business outside France or holds directly or indirectly more than 50% of the shares, stocks, financial rights or voting rights in a legal entity: legal person, body, trust or comparable institution, established or incorporated outside France and where this business or legal entity is subject to a privileged tax regime within the meaning of article 238 A, the profits or positive income of this company or legal entity are subject to corporation tax. Where they are made by a legal entity, they are deemed to constitute taxable income from transferable capital of the legal entity established in France in proportion to the shares, units or financial rights that it holds directly or indirectly.
The holding rate mentioned in the previous paragraph is reduced to 5% when more than 50% of the shares, units, financial rights or voting rights of the legal entity established or incorporated outside France are held by companies established in France which, in the case where the foreign entity is listed on a regulated market, act in concert or by companies which are directly or indirectly placed in a situation of control or dependence within the meaning of Article 57 with regard to the legal entity established in France.
2. The shares, units, financial rights or voting rights held indirectly by the legal person referred to in 1 are understood to mean shares, units, financial rights or voting rights held through a chain of shares, units, financial rights or voting rights; the percentage of shares, units, financial rights or voting rights held in this way is assessed by multiplying the successive rates of holding between them.
Indirect ownership also means shares, financial rights or voting rights held directly or indirectly:
a. By employees or de jure or de facto managers of the legal entity mentioned in 1;
b. By a natural person, his or her spouse, or their ascendants or descendants where at least one of these persons is directly or indirectly a shareholder, holder of shares, holder of financial rights or voting rights in this legal entity;
c. By an undertaking or legal entity having in common with that legal person a shareholder, unit holder or holder of financial rights or voting rights who directly or indirectly has the highest number of voting rights in that undertaking or legal entity and in that legal person;
d. By a commercial partner of the legal entity where the relationship between this legal entity and this partner is such that there is a relationship of economic dependence between them.
However, the shares, units, financial rights or voting rights referred to in a, b, c and d are not taken into account for the calculation of the percentage of the profit of the legal entity established outside France, which is deemed to constitute income from transferable capital of the legal entity.
3. The business profit or income from transferable capital referred to in 1 is deemed to have been earned on the first day of the month following the end of the financial year of the business or legal entity established or incorporated outside France. It is determined in accordance with the rules set out in this code with the exception of the provisions set out in Article 223 A and Article 223 A bis.
4. The tax paid locally by the company or legal entity, established outside France, may be offset against the tax established in France, provided that it is comparable to corporation tax and, in the case of a legal entity, in the proportion mentioned in the last sentence of the first paragraph of 1.
5. When the products or income of the company or legal entity include dividends, interest or royalties which come from a State or territory other than the one in which the company or legal entity is established or incorporated, the withholding taxes to which these dividends, interest or royalties have given rise are deductible in the proportion mentioned in the last sentence of the first paragraph of 1 from the corporation tax due by the legal entity established in France. However, this deduction is subject to the condition that the State or territory from which these dividends, interest or royalties originate is France or a State or territory which is linked to France by a convention for the elimination of double taxation on income and which is not uncooperative within the meaning of Article 238-0 A, in which case the deduction is made at the rate set out in the agreement.
II. - The provisions of I are not applicable:
- if the business or legal entity is established or incorporated in a State of the European Community and
- if the operation of the business or the holding of shares, financial rights or voting rights in the legal entity by the legal entity liable for corporation tax cannot be considered as constituting an artificial arrangement the purpose of which would be to circumvent French tax legislation.
III. - Apart from the cases mentioned in II, I does not apply where the legal entity established in France demonstrates that the operations of the company or legal entity established or incorporated outside France mainly have a purpose and effect other than to enable the localisation of profits in a State or territory where it is subject to a privileged tax regime.
This condition is deemed to be met in particular where the company or legal entity established or incorporated outside France has mainly an effective industrial or commercial activity carried out on the territory of the State of its establishment or registered office.
III. - bis (Repealed).
IV. - A Conseil d'Etat decree shall set the conditions for the application of this article and in particular the procedures for avoiding the double taxation of profits or income from transferable capital actually distributed as well as the reporting obligations of the legal entity.
