The second amended finance law for 2012, adopted on 31 July 2012, contains measures relating to the taxation of dividends distributed by French companies, namely:
- exemption from the withholding tax of 25% (30% since 2012) for dividends distributed to foreign mutual investment funds (OPCVMs). This follows the ruling by the Court of Justice of the European Union in its decision of 10 May 2012 that this tax was unlawful (case C-338/11 - Santander Asset Management SGIIC e.a.) ;
- the introduction of a tax of 3% on dividends, intended to offset the loss in tax revenue resulting from exemption from the above-mentioned tax.
Following various modifications in the National Assembly and the Senate, the final text of these measures as adopted on 31 July 2012 will have the consequences set out below for SIICs - quoted real estate investment companies - and OPCIs (SPPICAVs) - pooled real-estate funds (open-ended investment companies dealing mainly in real estate). These measures will be applicable to distributions of dividends made as of publication of the law, i.e. as from this August, subject to their referral to the Constitutional Council.
Tax of 3% on dividends: application to dividends distributed by SIICs and exemption for OPCIs (except where real estate is held via their SIIC subsidiaries)
Taxation at 3% of dividends distributed by SIICs
Members of parliament were not impressed by the argument that SIICs could not, in accordance with the law's spirit, escape the 3% tax by reinvesting their profits, given that they have a legal obligation to make distributions.
However, the worst case scenario did not come to pass as the text was changed in order to remove the application of the 3% tax on dividends paid by subsidiaries that had opted for the SIIC regime for their associated SIICs, thereby avoiding the threat of cascade taxation.
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No 3% tax on dividends distributed by OPCIs, but taxation of dividends paid by their SIIC subsidiaries
OPCIs (SPPICAVs) find themselves in the opposite situation to SIICs:
- the 3% tax is not applicable to dividends paid by OPCIs to their partners,
- but is due on dividends received by OPCIs from any subsidiary that has opted for the SIIC regime.
This constitutes an argument in favour of structuring OPCIs which hold real estate, either directly by the OPCI or via subsidiaries that are not subject to CT (SCIs), rather than holding real estate via subsidiaries that have opted for the SIIC regime, a structure used in the past notably in order to benefit from the SIIC 3 regime at the date of purchase.
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Is it possible to benefit from the general regime exempting SMEs?
SMEs, i.e. companies meeting the following criteria, are exempt from the 3% tax:
- less than 250 staff,
- turnover of less than €50M or balance sheet total of less than or equal to €43M.
In theory, there is nothing to prevent the application of this general exemption scheme to SIICs and SIIC subsidiaries of OPCIs. In practice, assessing the criteria relating to staff, turnover and balance sheets may cause difficulties. For example, if a company holds at least 25% of another company or is controlled to the same degree, the thresholds in question must be consolidated.
Withholding tax of 15% on dividends distributed by SIICs and OPCIs to French or foreign OPCs (mutual investment funds)
The abolition of the withholding tax on dividends distributed to foreign OPCs (OPCVMs, OPCIs, etc.) located in the European Union or other states that are signatory to a relevant tax convention will mean the complete exemption of taxation in France for French SIICs and SPPICAVs held by foreign OPCs (no CT on SIIC and SPPICAV results; no withholding tax on dividends distributed by them to foreign OPCs).
To rectify this situation, a withholding tax of 15% will be applicable to dividends distributed by SIICs, SIIC subsidiaries or SPPICAVs to French or foreign OPCs, i.e. those located in a Member State of the European Union or other signatory state.
Dividends distributed to a French OPCI (SPPICAV) by a subsidiary that has opted for the SIIC regime will be exempt from this withholding tax.
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A rate lower than 15% may be applied if the foreign OPC could benefit from the more favourable provisions of a tax convention concluded between France and the state where the OPC is resident. Given the legal and tax nature of OPCs, the application of tax conventions to the dividends they receive will generally raise difficulties or uncertainties.
Who is liable to pay the tax?
The 3% tax and the 15% withholding tax are payable by the company distributing the dividends.
However, the 3% tax differs from a withholding tax insofar as it is a definitive charge levied only on the distributing company for the financial year in which the distribution is made, i.e. the financial year following that in which the result underlying the dividends is realised.
In both cases, it is the shareholders who will, directly or indirectly, bear the economic burden of the two taxes. However, concerning the 3% tax, all the shareholders present the year following the payment of the dividends bear the economic burden. These shareholders may be different from those who have received the dividends. This is an additional element that must be taken into account in the case of a sale of company.
In the same way, the case of the sale of a company having some reserves triggers the question of the latent tax cost relating to the next distributions (potentially compulsory for OPCI and SIIC) that will generate the application of the 3% tax.