Paris, France

France: Anti-Avoidance Provisions

France has very sophisticated tax avoidance provisions but it should be re-iterated that genuinely external transactions, not requiring direct or indirect French input, are not liable to French taxes. The reason of course being that the French tax system is based on the 'territoriality' principle and not on non-French related worldwide income. It is for this reason, as has been shown, totally foreign transactions can be legitimately re-directed to external 'branches' and 'subsidiaries' even if such are located in very fiscally beneficial jurisdictions. However, where transactions are entered into by indigenous companies with external tax free or low tax vehicles, without any discernible commercial reason, the full force of French anti-avoidance legislation will come into effect together with a reverse burden of proof. Therefore, it is not possible for a French company to indulge in 'transfer pricing1 by simply inserting a foreign conduit company to absorb, directly or indirectly, surplus profits. The transaction must be fully external. If not, it is very likely that the French fiscal authorities will not accept it.

Further, the French do not just consider the apparent form of a transaction but also its substance. Therefore, unlike many other European countries, it is the actual benefit received by a company (i.e. after all incentives and dispensations have been accounted for) and not the 'official' figures, which can often be very misleading that count

Specific Tax Provisions

Under the current French fiscal regime a major distinction is made between controlled and non-controlled foreign entities:

Specific Tax Provisions

Under the current French fiscal regime a major distinction is made between controlled and non-controlled foreign entities:

  1. CONTROLLED: Where a French entity controls, either officially or unofficially, through the use of nominees or other such methods a foreign vehicle, then any abnormal or suspicious payments to that foreign vehicle will remain and be included in the French entity's taxable base (see Article 57 CGI). In other words, and remembering the reverse burden of proof, any foreign remittances (but in particular those to proscribed jurisdictions) will not automatically be withdrawn from taxable income until it can be established that the aforementioned were bona fide. It is important to note that Article 57 will cover all transactions, no matter whether it relates to trade, dividends, interest or royalties. Additionally, Article 209B of the CGI, forces French companies, where no tax treaty exists, to include profits earned by tax haven companies in which the above has at least a 10% participation, in its annual accounts. Of course, the ubiquitous reverse burden of proof applies but it should be noted that an automatic exemption is provided to genuine commercial and industrial activities;
  2. NON-CONTROLLED: Where a French entity remits income, no matter the reason - i.e. in trade, dividends, interest or royalties - to a jurisdiction where the tax rate is less than two thirds of the existing French rate (currently 33.3%) then again such payments will not automatically be offset against French taxable income (see Article 238A CGI). Thus, a French company dealing with any low tax jurisdiction, but in particular a tax haven jurisdiction, even if it is totally innocent, must be ready to defend its disbursements. In fact, so successful has Article 238A been that many French companies, especially larger entities, will not deal with de jure 'havens' because of the potential problems with the fiscal authorities.

The Tax Planning Solutions to Articles 57,238A & 209B

The raison d'être behind the said legislation is merely to try and prevent the more obvious and simple methods of tax mitigation. Methods which most tax consultants would deem to be 'sailing too close to the wind' of tax evasion. However, the job of the French tax inspector becomes far more difficult if more judicious jurisdictions are employed. Certainly, 'front line' tax havens should never be used whilst if treaty shopping is being conducted it is probably best to consider, if possible, other member states of the European Union especially 'cohesion' states such as Portugal/Spain or the more sophisticated and developed tax planning jurisdictions such as Ireland, Luxembourg or the Netherlands, all of which have received approval for their incentives/company structures. In such circumstances it would be politically difficult for France to question such transactions given its own state policy and the creation of DATAR. the french double taxation treaty network

COUNTRY DIVIDEND WITHHOLDING TAXES INTEREST (from) ROYALTIES (from)


Algeria 0% 0% N/A 15-50% 33.33% 25%
Argentina 15% 15% N/A 15% (7) 18% 5%
Australia *(8) 15% 15% N/A 10% 10% 15%
Austria *(9) 15% 0%  N/A  E0U 0%  0% (10) 0%
Bahrain 0% 0% N/A 0% 0% 25%
Belgium *(11) 15% 10%  10%  E0U 15% 0% 0% 
Brazil  *(12)15% 15%  N/A 10/15% 10-15-25%  10% 
Bulgaria  15% 5% 15%  0%  5% (13)  5%
Canada  15% 10%  10% 10%  (14) 10% (15)  10% 
China  10% 10%  N/A 10% 6-10%  0% 
Cyprus  15% 10%  10% 10% 0%  10%
Czech Rep.  10% 10%  N/A 0% 0-5% (17) 10% 
Denmark 0%  0%  N/A  E0U 0%  0%  25% 
Egypt  15%  5%  10% 15% 15-25%  5% 
Finland  15%  0%  10%  E0U 10% 0% 10% 
Germany (19) 0%  0%  10%  E0U 0% 0% 0% 
Greece  25%  25% N/A   E0U 0% (20) 5% 25%
Hungary  15% 5%  25% 0% 0%  5%
India  *(21)15%  15%  10% 0-15% 0% 25%
Iran 20% 15% 25% 15% 10% 10%
Ireland  15% 10 % 50%  E0U 0% 0%  25% 
Israel 15% 5% 10% 10% 0-10% (22) 25%
Italy *(23) 15%  5%  10%  E0U 10%  5% (24)  0% 
Japan   15% 0-5%  15% 10% 10% 0%
Jordan 15% 5% 10% 15% 15-5-25% 5%
Korea (South) 15% 10% 10% 10% 10% 5%
Kuwait 0% 0% 0% 0% 0% 25%
Lebanon 0% 0% N/A 0% 33.33% 25%
Luxembourg (28) 15% 5%  25%  E0U 10% 0% 5% 
Malaysia   *(27)15% 5%  10% 15%  (15) 1-33.33% (28) 10% 
Malta  (29) 15%  5%  10% 10%  10%  10% 
Mauritius 15% 5% 10% 15-50% 0-15% (30) 15%
Mexico *(31) 15% 0/5% 10% 0-10% 15% (32) 25%
Monaco 25% 25%  N/A 15-50% 33.33% 25%
Morocco *(33) 15/0%  15/0%  N/A 10-15% 5-10%  (34) 25% 
Netherlands  *(35) 15% 5% 25%  E0U 10%  0% 0%
New Zealand   15% 15%  N/A 10%  10%  10% 
Nigeria 15% 1205% 10% 1205%  (20) 1205% 25%
Norway  15%  0%  10% 10% 0%  5% 
Pakistan *(21) 25% 10% 10% 10% 10% 25%
Poland   15% 5%  10% 0%  0-10% (37) 25% 
Portugal 15%  1%  N/A   E0U 10-12%  5%  15%
Romania 10% 10% N/A 10% 10% 10%
Saudi Arabia 0% 0% N/A   220 0% 0% 25%
Singapore   *(38) 15% 10%  10% 10%  0-33.33% 5%
Slovakia  10% 10%  N/A 0%  0-5%  10% 
Spain *(40) 15% 10%  25% 10%  6%  0% 
Sweden   *(41) 15% 5%  10%  E0U 0% 0% 0% 
Switzerland  8(42) 15%  5%  20% 10% 5% 5%
Thailand  *(43) 15% 20/15%  25% 0/10/15%  0/5/15%  25% 
Trinidad & Tobago 15% 10% 10% 15% *(44) 0-10% 10%
Tunisia  25% 25%  25% 12%  *(45) 5/15/0%  25% 
Turkey  *(46) 20% 15%  10% 15-0% 10%  7.5% 
U.A.E. 0% 0% N/A 0% 0% 0%
U.S.S.R.(former)  15% 15% N/A 10/0% 0%  25%
United Kingdom *(48) 25% 5%  10%  E0U 0%  0% 0%
United States  15% 5%  10% 0%  *(49) 0-5% 5%
Venezuela  *(50)15/5%  0% 10% 5% 5% 25% 

*1 PE" = DISCOUNTED WITHHOLDING TAX RATE AVAILABLE WHEN PARTICIPATION EXEMPTION CRITERIA HAVE BEEN SATISFIED.

*2 PERCENTAGE OWNERSHIP REQUIRED TO RECEIVE "PE" RATE.

*3 AUTOMATIC WITHHOLDING TAX RATE FOR BRANCHES

For more information on the French Tax System please contact one of our tax planning consultants.