(Article 40 of the 2015 Amending Finance Act)

Parliament has decided to transpose the Stéria case law (September 2, 2015 Aff.C-386/14, Group Steria SCA) into French law in a minimal manner.

It has for this purpose repealed the full tax exemption applicable to intra-tax group distributions eligible to the parent-subsidiary regime.

These distributions will continue to be fully exempt from corporate income tax, subject to an add back of 1 % of the dividend amount - and not of 5% - into the individual tax return of the beneficiary. This new regime applies regardless of the period of belonging to the group.

The new provisions are also applicable to distributions from an EU or EEA resident subsidiary company which - should it have been a French resident entity - fulfills the necessary conditions to be part of the French tax group to which the French distribution recipient belongs.

There is still a formalism uncertainty regarding whether the foreign subsidiary must give its written consent as intermediate companies of tax groups must do. Concerning the other conditions, it seems clear, for example, that the fiscal year's opening and closing dates should be same.

Comments issued by French Tax Authorities will be expected in order to clarify certain practical rules of this new regime which applies to distributions made during fiscal years opened as from January 1, 2016.

Furthermore, taxpayers need to pay attention to some side effects of this new regime, especially regarding the subsidiary’s corporate income tax return, namely schedule 2058 A bis, showing the taxable income of the company as if it was not part of the group and thus subject to a 5% add back on the dividend income. This schedule is indeed used for employee profit sharing purposes and can be used to compute the indemnification of a subsidiary exiting the group.

It should finally be noted that, (a) on the one hand, distributions made by a French tax group member, and which are not eligible to the parent-subsidiary participation exemption regime, would still be fully tax exempt if paid as from the second fiscal year of tax consolidation and (b) on the other hand, this new regime could generate new discriminations.

For example, dividends paid by French subsidiaries held at 95% but which are not part of a tax group will not be eligible to the new 1% add-back regime, unlike EU subsidiary which would fulfill the conditions to be a tax group member (reverse discrimination). Also, concerning EU subsidiaries which could be part of tax group, dividends they would pay to a tax group member which hold less than 5% of their share capital would not be eligible to the new regime and thus subject to standard corporate tax income rate (while it would be fully exempt if the distributor was a French tax group member).