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General

Various types of payments to non-residents attract a withholding tax in France. The withholding tax is final in some cases but a mere prepayment towards final corporate tax liability in others. When the withholding tax is a mere prepayment, the Tax Administration considers that the excess withholding tax over the final tax liability is not refundable.

Prior to 2018, withholding tax was applied at different rates depending on the type of income. The Finance Law 2018 sought to harmonize the applicable rates by aligning them with the standard corporate tax rate, resulting in standard withholding tax rates of 28% in 2020, 26.5% in 2021, and 25% from 2022 onwards.

Withholding Tax Base

The withholding tax is applied as a general rule on the gross amount paid. There are, however, two exceptions to this rule: (a) in case of grossing-up (see below), and (b) as from 1 January 2022, on net or deemed net amounts with respect to specified payments and specified recipients (see below).

Grossing-up Mechanism

Whilst the withholding tax is operated in most cases by the payer or the French agent, it is a tax liability of the recipient, and French tax law (Art. 1672 bis of the French General Tax Code (CGI)) explicitly forbids the payer from paying the withholding tax on dividends and specified interest instead of the recipient. In situations where the withholding tax was not duly operated (e.g., in the case of constructive dividends), it becomes due on grossed-up amounts. The withholding tax is then calculated not only on the net amount paid to the recipient but also on the advantage represented by the failure to operate a withholding tax. Based on a standard withholding tax of 25% (for 2022 onward) on the gross amount paid, the withholding tax is recalculated at the rate of 25/75, thus resulting in a grossed-up rate of 33.33% (down from 36.05% in 2021) on the net amount paid to the recipient.

Payments to Non-Cooperative Jurisdictions

An increased withholding tax of 75% applies to various payment streams to non-cooperative jurisdictions (see Sec. 13.5. for a list). The increased rate applies irrespective of the actual fiscal residence of the beneficiary; i.e., it is sufficient that the payment is made to a listed jurisdiction even if the beneficiary is not resident in that jurisdiction. Where the beneficiary of the payment is resident in a country with which France has a tax treaty, a claim may be lodged for the application of the withholding tax rate under the relevant treaty (instead of the 75% rate). However, if the beneficiary is a French resident, the increased 75% rate becomes definitive. The increased rate does not apply if the recipient proves that establishment in the blacklisted jurisdiction is not motivated by and does not have the effect of enabling tax evasion.

Note that the adverse effects of inclusion of a given jurisdiction in the list are triggered from 1 January of the year following inclusion. In contrast, when a jurisdiction is removed from the list, the adverse effects cease to apply from 1 January of the year of removal.

On 31 May 2024, the French Supreme Court, in the 5Com case, ruled on the applicability of deduction denial and withholding tax for a payment to a non-resident. The case involved a French resident entity which paid consulting fees to the Luxembourg bank account of an entity established in the British Virgin Islands (BVI, a listed non-cooperative jurisdiction during the year under contention). The Supreme Court ruled that the deduction denial of, and withholding tax on, service fees made to the BVI entity cannot be applied simultaneously given that the deduction denial is on the grounds that the payment is not a genuine remuneration, whilst the withholding tax is meant to apply to genuine remunerations. Instead, the Supreme Court accepted the concomitant application of deduction denial and withholding tax if the latter is based on the recharacterization of the service fees as a constructive distribution. Given that the payment was made to a Luxembourg bank account of the BVI recipient rather than to the BVI, the Court struck down the application of the higher 75% withholding tax and allowed only withholding tax at the (then applicable) standard 30% rate.

Application of Treaty Relief where the Recipient is not the Beneficial Owner

The French Supreme Court traditionally made eligibility for tax treaty benefits conditional upon meeting a beneficial ownership test, even if the relevant treaty does not expressly include such a condition. In its Société Planet decision of 20 May 2022, however, the Supreme Court permitted for the first time the application of the benefits of the tax treaty with the country of residence of the actual beneficial owner instead of the tax treaty with the country of residence of the recipient. Therefore, in situations where the recipient (being a mere agent or nominee) and the beneficial owner are resident in two different countries, and the recipient is denied treaty benefits on the grounds that it is not the beneficial owner, then the actual beneficial owner of the payment is allowed to claim the benefits of the tax treaty between France and its country of residence.

Note that while not expressly addressed by the Court, the Advocate General did clarify in its Conclusions before the Court that, in such cases, the tax authorities are not under any obligation to identify whether a tax treaty with a third country would apply alternatively. According to the Conclusions, the role of the tax authority is merely to determine whether or not the recipient is the beneficial owner of the payment and to grant or deny treaty benefits accordingly. It is then up to the taxpayer in case of denial of treaty benefits to identify whether a treaty with the third country of the actual beneficial owner applies, and to claim the benefits of such treaty.

Temporary Refund of Withholding Tax

The Finance Law 2020 introduced a complex mechanism effective from 1 January 2020 and intended to comply with the 2018 Sofina decision of the European Court of Justice (ECJ), as confirmed by a 27 February 2019 decision of the French Supreme Court.

The ECJ held in the Sofina case that levying a withholding tax on a distribution to a loss-making non-resident recipient is incompatible with the freedom of capital movement because it creates a disadvantage to the non-resident recipient in comparison with a similar resident recipient. The rationale of the ECJ is that a resident recipient may still avail of credit for the withholding tax as soon as it becomes profitable again, which is not the case for a non-resident recipient in a similar situation.

Under the new mechanism, a distressed non-resident recipient may claim a (temporary) refund of the French withholding tax on specified income flows (including dividends) or only on dividends under two sets of rules. In general, the mechanism translates into a deferral of taxation but may ultimately result in non-taxation in specific cases.

The first set of rules concerns the temporary refund of withholding tax to distressed EU/EEA residents, provided there is a treaty with France providing for mutual administrative assistance and assistance in the recovery of tax claims. Refund claims, in this case, may cover withholding taxes on interest, dividends, professional income, service fees, capital gains on substantial participations, and income from and gains on immovable property. Temporary refunds may be requested until the end of the sixth month (increased from 3 months effective 1 January 2022) following the closing of the tax year during which tax was withheld.

The claimant must evidence that it is in a loss position during the relevant year (and subsequent deferral years, if any) and comply with strict follow-up procedures. The deferral is revoked in case of non-compliance with the procedural requirements or where the claimant becomes again profitable (in which case the deferral may be clawed back only in proportion to the profits realized and continue to apply for the balance). Subject to various conditions, the deferral is not clawed back, and the withholding tax refunded need not be paid back if the claimant enters into liquidation under judicial receivership, resulting in an ultimate loss.

The second set of rules concerns third-country (i.e., non-EU/EEA) residents and operates similarly to the first set of rules, with the notable difference that the temporary refund in the case of eligible third-country residents is limited to the withholding tax on dividends.

Dividends

Dividends paid to non-resident recipients attract a withholding tax at the standard rate of 25% effective from 1 January 2022 (26.5% for 2021 and 28% for 2020) unless relieved or exempt pursuant to domestic law, a tax treaty, or EU law.

The rate is increased to 75% when the dividends are paid to a recipient established in a “non-cooperative jurisdiction” (see Sec. 13.5. for a list of the jurisdictions) unless the recipient proves that establishment in such jurisdiction is not motivated by and does not have the effect of enabling tax evasion. In contrast, the withholding tax is reduced to 15% if the recipient is a qualifying EU/EEA non-profit organization. The withholding tax is a final tax in full satisfaction of the recipient’s French tax liability. Further, dividend distributions made to a non-EU collective investment fund (CIF) are exempt from withholding tax, subject to certain conditions. The French tax authorities must be able to obtain information from the foreign tax authorities to confirm that the conditions for exemption are met. Note that, subject to conditions, a French holding company may settle the French withholding tax due on its own dividend distributions by the foreign withholding tax levied on its dividend receipts.

Net Withholding Tax Basis

As a general rule, the withholding tax is due on the gross amount paid or the grossed-up amount in case the withholding tax is not operated or is paid by the distributing entity. Effective from 1 January 2022, however, specified non-resident recipients of French-source dividends are eligible for the application (by way of a post-fact refund) of dividend withholding tax on a net rather than a gross basis. The measure was introduced in compliance with ECJ and French Supreme Court rulings which found the difference in treatment between domestic and non-resident recipients to be in conflict with the freedom of capital movement.

With respect to dividends, eligible non-residents may request the recalculation of the withholding tax on a basis excluding the expenses effectively incurred in relation to the production and maintenance of the relevant dividend income, and may claim the refund of the resulting excess. Refund claims of excess withholding tax on gross amounts over the withholding tax on net amounts may be filed until 31 December of the second year following the year during which the original withholding tax on gross amounts was operated. The refund facility is available if the following conditions are cumulatively met:

The recipient is a legal person (including a partnership on condition that it is not a transparent look-through entity);
The recipient is established in:

an EU or an EEA Member State, other than a Non-Cooperative State or Territory (NCST), that has concluded a tax treaty with France which contains an administrative assistance provision aimed at combating tax fraud and tax evasion; or
a third (non-EU/EEA) country other than an NCST, that has concluded a tax treaty with France that contains an administrative assistance provision aimed at combating tax fraud and tax evasion, provided the recipient does not effectively participate in the management or control of the distributing entity;

The relevant expenses would have been deductible in France if the recipient were a French resident; and
The taxation rules of the country of residence preclude the offsetting of the French dividend withholding tax.

Exemptions and other Forms of Relief

In application of the EU Parent-Subsidiary Directive, dividend payments to EU/EEA parent companies are exempt from withholding tax provided:

The parent company is resident in an EU or EEA Member State, is subject therein to one of the taxes listed in the Directive and takes one of the legal forms listed in the Directive;
The parent company has held an interest of at least 10% in the distributing French subsidiary for at least two years. Where the minimum 2-year holding period is not yet satisfied on the date of distribution, the exemption may still apply subject to a commitment by the parent company to meet the condition in the future. Ordinarily, the withholding tax exemption does not apply if the minimum 10% holding condition is not satisfied. However, in follow-up to the ECJ decision in the Denkavit case, the tax authorities accepted to extend the dividend withholding tax exemption to EU/EEA corporate shareholders who hold an interest of more than 5% but less than 10% in the distributing French entity. In order to qualify, the following conditions must be met:
The conditions required under the Parent-Subsidiary Directive must be met (except the minimum participation threshold, which can be more than 5% but less than 10%); and
The EEA corporate recipient is unable to credit the French withholding tax against the tax due in its country of residence. This inability can result from various circumstances, such as when the recipient does not pay tax on the dividends received pursuant to a local participation exemption regime, or when it is in a loss position and is concurrently unable to carry-forward foreign tax credits. The inability to credit the French withholding tax must be evidenced by the French payer.

Also, dividends paid to the French permanent establishment of a non-resident company do not attract dividend withholding tax if the conditions required for the application of the participation-exemption regime are met (essentially a capital ownership interest of at least 5%).

Note that in all cases, constructive dividends are not eligible for the dividend withholding tax exemption.

Also, taxpayers can request relief from withholding tax on payments reclassified as ‘deemed dividends’ under a transfer pricing assessment, provided that a reassessment is accepted and the amount classified as ‘deemed dividends’ is repatriated within 60 days of the request. Such a request must be made before the tax authorities claim payment of the withholding tax.

Deemed Dividends

The French tax authority published two rulings on 15 February 2023 regarding the application of withholding tax on payments made by banks to non-residents considered as deemed dividends. The rulings provide that any value transfer that is conditioned or influenced, either expressly or implicitly, with reference to a dividend constitutes a deemed dividend. The rulings also provide an example of deemed dividends where, in securities lending arrangements, the borrower usually agrees to pay the lender an amount equal to the dividend or coupon received, minus any applicable taxes, that the lender would have collected if they had not lent the securities.

When a bank collects such deemed dividends from the payer and makes a subsequent transfer to a non-resident beneficial owner, the bank is required to withhold tax on it.

The first ruling clarifies that withholding tax is not limited to instances where a bank collects dividends from holding French shares and subsequently pays them to non-residents. Withholding tax also applies when a bank acts as an intermediary by collecting a deemed dividend and paying it to a non-resident beneficiary owner.

The second ruling clarifies that a bank is required to withhold tax on temporary purchases of French shares and transactions associated with specific derivatives carried out with non-residents. However, banks are not required to withhold tax if they can demonstrate that certain conditions are met, like the borrower of the French shares is not related to and has no personal, financial, or economic ties to the bank, etc.

(Temporary) Refund of Withholding Tax to Eligible Loss-making Recipients

In compliance with the ECJ ruling in the Sofina case, France introduced a facility whereby eligible EU/EEA and third-country dividend recipients who are in a loss-position may claim a (temporary) refund of the dividend withholding tax. See details under Sec. 8.2.2. / General.

Brexit Impact

With the expiry of the Brexit transitional arrangement on 1 January 2021, the United Kingdom formally ceased to be part of the EU. From the same date, therefore, dividends paid out from French sources to UK recipients cease to qualify for the favorable withholding tax treatment pursuant to the EU Parent-Subsidiary Directive (see above). As a facilitation measure, however, the French tax authorities confirmed that such dividends continue to qualify for the favorable treatment available under the Parent-Subsidiary Directive on the condition that they are paid out during the French recipient’s financial year, which was opened before 31 December 2020, subject to the compliance with the conditions that apply for the exemption. On 11 March 2021, the French tax authority published guidance (BOI-INT-DG-15-20) regarding the withdrawal of the UK from the EU, which included guidance on the transitional provisions for the tax treatment of dividend distributions.

Anti-Avoidance Rules

From 2015, the withholding tax exemption for distributions to EU/EEA parent companies does not apply if the distribution is connected with an arrangement or a series of arrangements put in place with the main or one of the main purposes of receiving a tax benefit and not for valid commercial reasons that reflect economic reality. In contrast, another anti-abuse provision under French tax law pursuant to which the exemption does not apply if the EU/EEA parent company is in turn controlled by non-EU/EEA persons has been struck down by the European Court of Justice on 7 September 2017 as incompatible with EU law.

In order to combat cum-ex dividend schemes, any type of payment made from 1 July 2020 by a French resident directly or indirectly to a non-resident up to the portion that corresponds to a distribution of income arising from a shareholding is considered a deemed distribution and is subject to withholding tax at the standard rate of 25% effective from 1 January 2022 (26.5% for 2021 and 28% for 2020) (see above), where:

The payment is performed in the course of a temporary (artificial) transfer of the shares/rights of the French resident or any other transaction that gives rise to a right or an obligation to resale/return these shares/rights or any rights on this shareholding; and
The transfer took place within a 45-day period that includes the payment (distribution) date.

However, where such tax has been withheld, and the beneficiary of the payment can demonstrate that the main purpose of the transaction was not to avoid withholding tax or obtain a tax benefit, a refund may be provided.

Finally, note that in line with the ECJ’s Danish cases decision, the French Supreme Court ruled that the beneficial ownership condition is a valid condition for the application of relief under the Parent-Subsidiary Directive, so that France is not required to grant an exemption from dividend withholding tax if the recipient is not the beneficial owner of the dividends.

Interest and Similar

With effect from 1 March 2010, generally, no withholding tax is levied on French-source interest paid to non-resident companies unless the interest is paid to a non-cooperative jurisdiction (see Sec. 13.5. for the list). If the payment is so made, a final withholding tax is due at the rate of 75%, unless the taxpayer proves that the payments are not motivated by tax avoidance.

As a general rule, the withholding tax applies to interest paid to an entity established in a non-cooperative jurisdiction, regardless of the place of residence of the beneficiary. The tax authorities specified that the tax liability arises if the interest is paid (paiement à destination) to an account located in a non-cooperative jurisdiction. Thus, interest credited on a French account (e.g., an account with the French branch/subsidiary of a foreign bank) may avoid the withholding tax even though the said account is held by a company established or a resident in a non-cooperative jurisdiction (Ruling No. 2010/11, 22 February 2010). In addition, interest payments to recipients situated in a non-cooperative jurisdiction are not deductible to the payer.

However, the following interest payments are explicitly excluded from the application of the 75% withholding tax:

Interest arising from loans contracted abroad by French companies and investment funds (FCPs) before 1 March 2010; and
Interest arising from loans contracted abroad by French companies and investment funds (FCPs) after 1 March 2010 but allocated to loans contracted before that date in respect of Art. 131 quarter of the French General Tax Code (CGI).

Implementation of the EU Interest and Royalties Directive

Under the domestic law implementing the provisions of the EU Interest and Royalties Directive (2003/49) with effect from 1 January 2004, outbound interest payments are exempt from withholding tax, provided that the beneficial owner of the interest is an associated company of the paying company and is resident in another EU Member State or such a company’s permanent establishment situated in another Member State.

France grants this exemption on fulfillment of the following conditions:

The French paying company is a SA, SAS, SARL, SCA, or a French permanent establishment of a qualifying company under the Directive;
The French-paying company is liable to, and not exempt from, corporate income tax, in particular on such income;
The receiving company is the beneficial owner of the income. This is intended to prevent mere conduit companies from benefiting from the exemption; and
The payer and the recipient are associated companies. Two companies are “associated companies” if (a) one of them has a direct minimum holding of 25% in the capital of the other; or (b) a third EU company has a direct minimum holding of 25% in the capital of the two companies.

Under Art. 15 of the agreement of 26 October 2004 between the European Union and Switzerland providing for measures equivalent to those laid down in the EU Savings Directive, the EU Member States must exempt interest and royalty payments to companies resident in Switzerland under essentially the same conditions as those laid down in the EU Interest and Royalties Directive. The provisions of the agreement are effective from 1 July 2005. It should be noted, however, that interest payments are exempt under the France-Switzerland tax treaty.

Royalties (Copyright, Patent, Trademark)

Royalties paid to non-residents normally attract a withholding tax at the standard rate of 25% effective 1 January 2022 (26.5% for 2021), unless reduced or eliminated by a tax treaty or the EU Interest and Royalty Directive. The standard royalty withholding tax rate has been aligned with the standard corporate tax rate since 2019. The rate is increased to 75% if the payment is made to a non-cooperative jurisdiction (see Sec. 13.5. for the list). Further, the payment is not deductible for the payer except if certain conditions are met.

Ordinarily, the withholding tax is due on the gross amount paid (or the grossed-up amount where applicable). However, it is due on a net basis or a deemed net basis for eligible recipients.

Net and Deemed-net Withholding Tax Basis

As a general rule, the withholding tax is due on the gross amount paid or the grossed-up amount in case the withholding tax is not operated or is paid by the French entity. Effective from 1 January 2022, however, specified non-resident recipients of French-source royalties are eligible for a 10% deduction from the taxable base on account of (deemed) expenses in relation to the production and maintenance of the royalty income. The withholding tax is, in that case, due on 90% of the gross payment, regardless of the actual expenses incurred. The 10% deemed expense deduction may be applied at the time of operation of the withholding tax.

Alternatively, the recipient may claim the post-fact application of the withholding tax on the actual net royalty income after accounting for the expenses directly incurred for the production and maintenance of the royalty income. In that case, eligible claimants are granted a post-fact refund of the difference between the withholding tax applied on the gross amount or on 90% of the gross amount, and the withholding tax on the net amount. The claim can be made until 31 December of the second year following the year during which the withholding tax was operated. In order to qualify for either the 10% deemed expense deduction or for withholding tax on a net basis, the following conditions must be cumulatively met:

The recipient is a legal person (including a partnership on condition that it is not a transparent look-through entity);
The recipient is established in an EU or an EEA Member State, other than a Non-Cooperative State or Territory (NCST), that has concluded a tax treaty with France which contains an administrative assistance provision aimed at combating tax fraud and tax evasion;
The relevant expenses would have been deductible in France if the recipient were a French resident; and
The taxation rules of the country of residence preclude the offsetting of the French withholding tax.

Note that in contrast to the net withholding tax basis for dividends (see above), the (deemed) net taxation basis for royalties is not available to third (non-EU/EEA) country residents.

Implementation of the EU Interest and Royalties Directive

Under the domestic law implementing the provisions of the EU Interest and Royalties Directive (2003/49) with effect from 1 January 2004, outbound royalty payments are exempt from withholding tax, provided that the beneficial owner of the royalties is an associated company of the paying company and is resident in another EU Member State or such a company’s permanent establishment situated in another Member State.

France grants this exemption on fulfillment of the following conditions:

The French paying company is a SA, SAS, SARL, SCA, or a French permanent establishment of a qualifying company under the Directive;
The French-paying company is liable to, and not exempt from, corporate income tax, in particular on such income;
The receiving company is the beneficial owner of the income. This is intended to prevent mere conduit companies from benefiting from the exemption; and
The payer and the recipient are associated companies. Two companies are “associated companies” if (a) one of them has a direct minimum holding of 25% in the capital of the other; or (b) a third EU company has a direct minimum holding of 25% in the capital of the two companies. Subsidiaries of which at least 25% is held by the same parent company may also benefit from the exemption.

Under Art. 15 of the agreement of 26 October 2004 between the European Union and Switzerland providing for measures equivalent to those laid down in the EU Savings Directive, the EU Member States must exempt interest and royalty payments to companies resident in Switzerland under essentially the same conditions as those laid down in the EU Interest and Royalties Directive. The provisions of the agreement are effective from 1 July 2005.

Technical, Managerial, and Administrative Services

A non-resident company without a fixed place of business in France (i.e., a permanent establishment) may only be liable to French tax for income sourced in France, i.e., sums paid by a French resident in remuneration of services of any kind "rendered" or "used" in France (Art. 164 B I and II of the French General Tax Code (CGI). This general source rule covers payments in consideration of the supply of any kind of services, e.g., technical or managerial services, rents, commissions, and artistic performances. The tax is due by withholding at source at the rate of 25% effective 1 January 2022 (26.5% for the year 2020) by the debtor of the income and remitted to the tax authorities before the 15th day of the month following the month in which the payments were made. From 2019, the withholding tax rate is aligned with the corporate tax rate.

The withholding is not final; the recipient is expected to file an income tax return, and the withholding tax may then be credited against the final tax due under general rules. However, according to the tax authorities, excess withholding tax over the final tax liability is not refundable.

The withholding tax rate is increased to 75% if the payment is made to a non-cooperative jurisdiction (see Sec. 13.5. for the list).

Note that most tax treaties concluded by France preclude source State taxation of this type of fee unless the fees are attributable to a permanent establishment therein.

In respect of artistic performances, a lower rate of 15% is available under domestic law, subject to the following conditions (Art. 182 A bis of the French General Tax Code (CGI)):

The recipient of the income is a non-resident corporate entity, with no fixed place of business in France;
The performance is of an artistic nature (e.g., actor, singer, musician, choreographer); and
The income is related to the said artistic performance.

In addition to the above, all sums paid to a foreign individual or legal entity as consideration for services rendered in France are imputed to and taxable in the hands of the individuals or legal entities that actually performed such services if one of the following three conditions is fulfilled:

The person performing such services directly or indirectly controls the payee;
The person performing such services cannot prove that the principal business activity of the payee is other than the rendering of services; or
The payee is a domiciliary of a tax haven (Art. 155 A (I-II) of the French General Tax Code (CGI)) and benefits from a privileged tax regime (see Sec. 13.3.).

This provision is meant to impose a tax on those persons or companies performing services in France that, in order to avoid French Tax, have created a foreign personal service company to which consideration for such services is paid. Where such an imputation of constructive income is made, the person performing the services is jointly and severally liable with the payee for the payment of normal French taxes on the entire amount of the remuneration paid. Finally, it is to be noted that where the person performing the services is not domiciled in France, such person is subject to French income tax on the amount of the constructive income imputed as a result of the services rendered in France pursuant to the rules governing the taxation of non-residents. Ordinarily, the withholding tax is due on the gross amount paid (or the grossed-up amount where applicable). However, it is due on a net basis or a deemed net basis for eligible recipients.

Net and Deemed-net Withholding Tax Basis

As a general rule, the withholding tax is due on the gross amount paid or the grossed-up amount in case the withholding tax is not operated or is paid by the French entity. Effective from 1 January 2022, however, specified non-resident recipients of French-source service fees are eligible for a 10% deduction from the taxable base on account of (deemed) expenses in relation to the production and maintenance of the service fees. The withholding tax is, in that case, due on 90% of the gross payment, regardless of the actual expenses incurred. The 10% deemed expense deduction may be applied at the time of operation of the withholding tax.

Alternatively, the recipient may claim the post-fact application of the withholding tax on the actual net service fees after accounting for the expenses directly incurred for the production and maintenance of the service fees. In that case, eligible claimants are granted a post-fact refund of the difference between the withholding tax applied on the gross amount or on 90% of the gross amount, and the withholding tax on the net amount. The claim can be made until 31 December of the second year following the year during which the withholding tax was operated. In order to qualify for either the 10% deemed expense deduction or for withholding tax on a net basis, the following conditions must be cumulatively met:

The recipient is a legal person (including a partnership on condition that it is not a transparent look-through entity);
The recipient is established in an EU or an EEA Member State, other than a Non-Cooperative State or Territory (NCST), that has concluded a tax treaty with France which contains an administrative assistance provision aimed at combating tax fraud and tax evasion;
The relevant expenses would have been deductible in France if the recipient were a French resident; and
The taxation rules of the country of residence preclude the offsetting of the French withholding tax.

Note that in contrast to the net withholding tax basis for dividends (see above), the (deemed) net taxation basis for service fees is not available to third (non-EU/EEA) country residents.

Capital Gains

Capital gains realized by non-residents are generally exempt from tax in France. However, capital gains realized on French real estate, or on shares in entities whose assets consist principally of French real estate are subject to tax in France. Also, capital gains on the disposal of an interest in a French entity are subject to tax in France if the seller has held, directly or indirectly, at any time in the 5 years preceding the sale, an interest of more than 25% of the income rights in the French entity whose shares are disposed of (so-called substantial participation).

From 2018, the withholding tax rates on such capital gains are aligned with the corporate tax rates, resulting in withholding tax rates of 28% in 2020, 26.5% in 2021, and 25% from 2022 onwards. The withholding tax rate is increased to 75% if the non-resident is located in a non-cooperative jurisdiction (see Sec. 13.5. for the list).

Effective 30 June 2021, qualifying undertakings for collective investment are excluded from the scope of non-resident capital gains taxation if resident in an EU/EEA Member State or in a third state, other than an NCST, which has a tax treaty with France containing an administrative assistance provision aimed at combating tax fraud and tax evasion, subject to certain other conditions.

Since the imposition of withholding tax at the standard rate on EU/EEA residents deriving gains on substantial participations would be contrary to EU law (French residents are taxed only on 12% of the gains, the remaining 88% being exempt under the participation exemption regime), a guideline issued by the tax authorities allowed EU/EEA residents to claim the difference between the withholding tax at the standard rate and the tax which would have been due in France if they were French residents (that is tax at the standard rate but on only 12% of the gains). In its AVM International Holding decision of 14 October 2020, however, the Supreme Court held that EU/EEA residents must be allowed to claim back the entire withholding tax on gains on substantial participations and not only the difference between the withholding tax due at the standard rate and the lower tax due under the Administrative Guideline. The Court reasoned that the imposition of withholding tax on EU/EEA residents at the standard rate is incompatible with EU law, and such incompatibility cannot be repaired by an Administrative Guideline. It concluded, therefore, that since the imposition of the tax is flawed from the beginning, it must be refunded in full.

Note, however, that the Supreme Court seems to have retracted this position. Indeed, in its Korean National Pension Service decision of 6 December 2021, the Court clarified that only so much of the overpaid tax must be refunded as is necessary to re-establish equal treatment with resident recipients. The Court followed in this regard the recommendation of its Advocate General, who objected that granting a full refund would create reverse discrimination. In its decision of 23 June 2022, the Supreme Court made a similar observation by confirming a partial refund of the overpaid tax to a Swiss national residing in Monaco. The Court clarified that the freedom of movement of capital granted by the Treaty on the Functioning of the European Union makes it necessary for the restoration of equivalence of treatment when a non-resident taxpayer has been treated in an unfavorable manner as compared to a French resident in comparable circumstances. The Court ruled that the grant of a partial refund put the Monaco resident in the same position as a French resident in comparable circumstances and observed that there is no obligation to grant a full refund of the tax levied.

As mentioned above, while the Supreme Court seems to have retracted its position from the AVM International Holding decision, that decision addressed a situation by which a reduction in the rate of withholding tax was granted through an administrative guideline, as distinguished from its subsequent decisions that addressed a situation by which the reduction in the rate of withholding tax was introduced by an act of parliament. Therefore, it is probable that the Supreme Court intended to address both situations differently.

In order to close the loophole created by the above AVM International Holding decision of the Supreme Court, France adopted formal legal provisions governing the capital gains tax refund effective for gains realized from 30 June 2021. The new legal provisions prescribe that eligible non-residents are entitled to a refund of the capital gains tax on substantial participations and the refund is capped at the difference between the capital gains tax paid and the tax which would have been due if the recipient benefitted from the French participation exemption regime (that is French standard corporate tax on 12% of the gains). The refund is available to:

Non-resident entities established in an EU/EEA Member State, other than a Non-Cooperative State or Territory (NCST), that has concluded a tax treaty with France which contains an administrative assistance provision aimed at combating tax fraud and tax evasion; and
Non-resident entities established in third (non-EU/EEA) states, other than an NCST, that have concluded a tax treaty with France that contains an administrative assistance provision aimed at combating tax fraud and tax evasion, provided the entity does not effectively participate in the management or control of the French entity of which the shares are disposed.

Many tax treaties concluded by France preserve the right of France to tax capital gains derived by residents of the treaty partner to the extent they are realized on French real estate, shares in entities whose assets consist principally of real estate, or on substantial participations in French entities.

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