(Montreuil Administrative Court, Jun. 15, 2015, no. 1307241, SAS CVT Holding)

Between September 2008 and October 2009, SAS CVT Holding acquired 94.9% of the shares of Financière CVT's capital.  In November 2009, Financière CVT carried out a capital decrease by cancelling shares.  As consideration for this, SAS CVT Holding was attributed €490,000,000 in cash, notably including a dividend of €21,847,134.  Notwithstanding this transaction, SAS CVT Holding retained more than 5% of Financière CVT's capital until at least 2011.

SAS CVT Holding elected for the application to the dividend received in 2009 of the parent-subsidiary regime.

During the audit, the tax authorities disputed this election on the grounds that the dividends received for the cancelled shares, which SAS CVT Holding retained for less than 2 years (from September 2008 to November 2009), were not eligible for the parent-subsidiary regime.

The question to be settled by the Court was whether the requirement of a 2-year retention period, which determines application of the parent-subsidiary regime, must apply to all shares for which an eligible dividend is paid or only to a minimum 5% shareholding base.

The French Administrative Supreme Court previously ruled on this issue in the Technicolor decision (French Administrative Supreme Court, Dec. 15, 2014, no. 380942, SA Technicolor).

In this decision, the French Administrative Supreme Court made an interpretation consistent with Council Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, pursuant to which the retention requirement applies only to “holdings qualifying them as parent companies".  It follows that the retention requirement applies only to the 5% minimum shareholding base.

What is of particular interest in the Montreuil Administrative Court's decision in the CVT Holding case is that it relates to a distribution made after the entry into force of Article 39 II of the 2005 Amending Finance Act (no. 2005-1720 of Dec. 30, 2005), which modified the retention requirement, notably by eliminating the need for a formal commitment to retain shares for the requested period.

In this respect, one notes that the Montreuil Administrative Court's decision is fully in line with the French Administrative Supreme Court, as the recital in the Technicolor decision on the need for an interpretation consistent with the directive is restated in full in the CVT Holdingdecision.

Furthermore, as the tax authorities have not appealed this decision, one can only presume that they also accept the Technicolor case law.

It follows that the parent-subsidiary regime applies to all shares insofar as a 5% minimum shareholding base is retained for at least 2 years.  In this respect, the modifications to the regime made by the 2005 Amending Finance Act have had no impact.