The current French consolidation regime requires, inter alia, a French corporate taxpayer acting as parent (whether a French entity or the French branch of a non-French entity) owning 95% or more of other French corporate taxpayers.

As a consequence of EU case law, based on freedom of establishment, it has been now accepted that the 95%-owned French subsidiaries may be held through affiliates based within the EU.

What is not currently accepted is that two French entities owned by a non-French corporate taxpayer could form a tax consolidation group (the so-called horizontal consolidation).

Indeed, the French lower courts have decided that such a horizontal consolidation is not possible either because the French rules are based on the principle of a vertical consolidation or because the situation of a non-French parent entity (i.e., without a French branch) is not comparable to the situation of a French parent entity.

However, the situation may change in the future, depending on the outcome of cases currently being discussed before the EUCJ dealing with similar questions under the Dutch tax grouping rules (similar to the French rules). Indeed, the conclusions of the Advocate General clearly favor the horizontal consolidation. She considers that (i) a tax grouping system is really defined by the fact that one company should be held liable for the tax liability of a group of companies and there is no reason that such an approach could not be applied to a horizontal consolidation, and (ii) the impossibility for a parent to consolidate its subsidiaries based in another jurisdiction would go against the principle of free establishment, when one compares the situation with that of a parent consolidating its subsidiaries located in the same jurisdiction.