How to Reclaim French Dividend Withholding Tax
The French tax authorities (FTA) released an update on August 12, 2020. The update states that non-EU collective investment funds (CIFs) must adhere to specific requirements to qualify for withholding tax exemptions on dividends from a French source. Foreign investors looking to enhance their French-sourced dividend income must understand these requirements to reclaim French dividend withholding tax (WHT).
non-EU collective investment vehicle (civ): Historical treatment
The European Union Treaty prevents EU member states from treating CIVs differently, based only on where they are domiciled. This prohibition applies to all EU member states. Accordingly, French law has permitted certain international CIVs to receive dividends from French sources free of withholding tax since 2012. Due to French CIVs’ exemption from WHT under French legislation, overseas CIVs considered similar to these should also be exempt.
This principle becomes apparent when looking at the tax treatment of Collective Investments in Transferable Securities (UCITS). UCITS are highly regulated. Therefore, regardless of the EU member state in which they originate, France treats all UCITS funds from the EU uniformly. As a result, they are exempt from French dividend withholding tax on investment payments.
However, when concerning non-EU funds, the French tax authorities have, until recently, given very little guidance regarding Comparability requirements. These are the requirements that non-EU funds need to meet to be considered comparable to French UCIs. Consequently, meeting the requirements would result in a withholding tax-exempt status. Only recently, French tax authorities granted several US Registered Investment Companies reclaim requests following the free movement of capital Act.
France establishes standards for CIVs from outside the EU.
The FTA-provided update is crucial since it defines the requirements for non-EU CIVs to be comparable to French CIVs. For non-EU funds to qualify for the withholding tax exemption, they must meet two general rules:
Requirement 1: The CIV must be established in a region that has signed an administrative assistance agreement with France to combat tax fraud and evasion.
Requirement 2: The non-French CIV must possess certain comparable traits to those of established French funds. These traits include the following:
- Capital raised for the CIV must come from several investors following a predetermined investment policy.
- Unitholders must not be in control of the CIV.
- A supervisory authority-approved management company must manage the CIV.
- CIV should use a separate custodian that is independent of the fund manager.
- There must be an investment and risk-spreading policy in place.
- Potential investors should be issued a document containing the policy preceding any subscription.
- An independent auditor must certify the CIV’s accounts as they are to be approved or registered with a supervisory authority.
Additionally, following the administrative assistance agreement signed between France and the relevant territory, the fund should be able to demonstrate its similarity with French or EU funds and with the authorities of the applicant’s state of residence.
The complexity of Proving Comparability
It is challenging to practically determine whether a non-EU investment fund qualifies for the withholding tax exemption. The legal and regulatory environment for funds in non-EU nations differ from that of the EU further complicating the matter. As a result, demonstrating comparability can be incredibly difficult.
How Can Global Tax Recovery Help?
Our dedicated team of tax recovery experts understand the intricate comparability standards and the French legal frameworks pertinent for comparison. We maximize your chances of receiving a withholding tax refund, by conducting a thorough study of the funds and determining whether they may be comparable to French CIVs.
In addition to determining if investment funds are similar in light of the new French tax guidance for potential claims, it’s also crucial to look at any previous refund requests that investors submitted to the French tax authorities. Action may be necessary to protect the right to a refund and prevent it from being compromised by formal or substantive shortcomings.
At Global Tax Recovery, we will handle the entire administrative burden to ensure that you get the maximum return for your investments and you focus on what matters most – your business.
Get in touch with Global Tax Recovery today