How to Reclaim French Dividend Withholding Tax

According to an update released by the French tax authorities (FTA) on August 12, 2020, there are updated requirements that non-EU collective investment funds (CIFs) must adhere to qualify for withholding tax exemptions on dividends from a French source. For foreign investors looking to maximise their French-sourced dividend income, understanding these requirements is essential to reclaiming the French dividend withholding tax.?

Historical treatment of non-EU collective investment funds

The Treaty on the Functioning of the European Union prevents EU member states from treating similar Collective Investment Vehicles (CIVs) differently based only on where they are domiciled. This prohibition applies to all EU member states. Accordingly, French tax law has permitted certain international CIVs to receive dividends from French sources free of withholding tax since 2012. Given that French CIVs are exempt from withholding tax under French tax legislation, this will also apply to overseas CIVs that are considered similar to French CIVs.

The application of the aforementioned principle becomes apparent when looking at the tax treatment of Collective Investments in Transferable Securities (UCITS). Due to the highly regulated nature of these funds, regardless of the EU member state in which they are located, all UCITS funds from the EU are treated uniformly by France and therefore exempt them from French dividend withholding tax on investment payments.?

However, concerning non-EU funds, the French tax authorities have up until recently, given very little guidance regarding the requirements that need to be met to be considered comparable to French UCIs and so benefit from the withholding tax-exempt status. Only more recently have the French tax authorities granted several reclaim requests made by United States Registered Investment Companies (RICs) per the free movement of capital Act.

France establishes standards for CIVs from outside the EU

In this regard, the recent update provided by the FTA in August 2020 is crucial since it defines the requirements for international non-EU CIVs to be compared to French CIVs. For non-EU funds to qualify for the withholding tax exemption, they must meet two general requirements.

Requirement 1: The CIV must be established in a region or state that has signed an administrative assistance agreement with France to combat tax fraud and evasion.?

Requirement 2: The non-French CIV must possess specific traits that are comparable to those of established French funds. These traits include the below.

• Capital raised for the CIV must come from several investors following a predetermined investment policy?
• Unitholders must not be in control of the CIV?
• The CIV is to be managed internally or through a management company which is approved by a supervisory authority?
• There must be a separate independent custodian that is different from the fund manager?
• There must be an investment and risk-spreading policy in place and a document containing this policy must be issued to its potential investors preceding any subscription
• An independent auditor must certify the CIV’s accounts and they are to be approved or registered with a supervisory authority

Additionally, following the administrative assistance agreement signed between France and the relevant state or territory, the fund should be able to demonstrate its similarity with both French or EU funds as well as with the authorities of the state in which the applicant is domiciled.

The complexity of Proving Comparability

Even though a guideline listing the requirements is provided, it is challenging to practically determine whether a non-EU investment fund qualifies for the withholding tax exemption. The fact that the legal and regulatory environment for funds in non-EU nations is different from that in the EU further complicates the matter. As a result, demonstrating comparability can be incredibly difficult.

How Can Global Tax Recovery Help?

Our dedicated team of tax recovery experts understand the intricate comparability standards and the French legal frameworks pertinent for comparison. We maximize your chances of receiving a withholding tax refund, by conducting a thorough study of the funds and determining whether they may be comparable to French CIVs.?

In addition to determining if investment funds are similar in light of the new French tax guidance for potential claims, it's also crucial to look at any previous refund requests that were submitted to the French tax authorities. To protect the right to a refund and prevent it from being compromised by formal or substantive shortcomings, action may be necessary concerning claims that have already been made.

At Global Tax Recovery, we will handle the entire administrative burden to ensure that you get the maximum return for your investments and you can focus on what matters most – your business.

Get in touch with Global Tax Recovery today.