Beneficial owners - France (securities held in BNP Paribas Securities Services)

18.05.2012

The following types of beneficial owner are recognised for tax purposes in France:

  • Residents of Double Taxation Treaty (DTT) countries;
  • EU/EEA-DTT resident individuals;
  • EU parent companies;
  • Non-Profit Organisations;
  • Particular foreign entities;
  • Foreign Collective Investment Vehicles (CIVs).

The following types of beneficial owner are not eligible for relief:

  • Residents of France - these can apply for refund of withholding tax directly with the French Tax Authorities through their annual declaration;
  • Residents of countries that do not have a DTT with France;
  • Residents of countries that have a DTT with France but do not fulfil the conditions of eligibility defined by the DTT, including the following:
    • Some (for example, Polish) pension funds
      Polish pension funds do not pay tax on income in Poland and so do not satisfy the condition of taxation foreseen by the Direction de la Législation Fiscale (DLF), Article 4, §1, and cannot qualify for the benefit of the reduced rate stipulated in the DTT.
    • Finnish investment funds and investment companies
      With the abolition of the “avoir fiscal” from 1 January 2005, Finnish investment funds and investment companies are no longer eligible for DTT benefits through either relief at source or reclaim.
    • German entities not subject to tax in their country of residence
      For example, religious institutions (Kirchen), associations (Vereinigungen), charitable organisations or foundations (Stiftungen), philanthropic foundations, pension funds (Pensionskassen), contingency funds (Versorgungen) and E.V. type entities.

Residents of Double Taxation Treaty (DTT) countries

The taxation treatment for these beneficial owners of French equities varies according to security type, as follows:

Relief at source is available to beneficial owners that:

  • Qualify for the benefit of a 15% or lower reduced rate of withholding tax in accordance with a DTT between their country of residence and France; and
  • Meet the conditions laid down by the applicable DTT to obtain the benefit of the reduced withholding tax rate. Among these conditions, the distributed income paid by the company resident in France must be liable to income tax in the beneficial owner’s country of residence.

The maximum rate of withholding tax is defined in the relevant DTT.

Partial standard refund of withholding tax on dividends is available to beneficial owners if:

  • They qualify for relief at source but the required certification was not provided before the relief at source deadline; or
  • They qualify for the benefit of a reduced rate of withholding tax that is higher than 15% in accordance with a DTT between their country of residence and France.

Customers can apply for a standard refund on behalf of beneficial owners through Clearstream Banking by submitting the appropriate documentation.

Beneficial owners (of equities) not eligible for relief at source:

The following beneficial owners cannot apply for a reduced rate at source but may reclaim withholding tax through the standard refund procedure:

  • Residents of a country that benefits form a treaty rate higher than 15%; or
  • Collective investment schemes of which one or more of the underlying shareholders is not resident in the home country of the scheme.

Different Statements of Practice have been published by the French Tax Authorities and stipulate that the following beneficial owners, among others, are also not eligible to apply for a reduced rate of withholding tax at source:

  • Residents of Singapore, for which there are specific procedures for the application of the tax treaty advantages agreed between Singapore and France;
  • Certain Swiss legal entities (including mutual funds and UCITSs), for which specific provisions of the DTT between Switzerland and France apply;
  • U.S. partnerships, for which the modalities of application are more complex.

EU/EEA-DTT resident individuals

Relief at source is available to EU/EEA-DTT resident individuals at a rate of 21%, as per internal French Law 2007-1822.

In practice, however, the 21% rate applies to beneficial owners that are resident individuals of the following countries only:

  • Denmark: the Danish tax treaty expired as of 1 January 2009.
  • Greece: the Greek treaty rate for dividends is 30%.
  • Liechtenstein: there is currently no tax treaty with Liechtenstein.

Other countries in the relevant category have a lower rate of withholding tax through a DTT with France.

EU parent companies

An EU parent company is a company that holds a substantial participation in the capital of the French company paying the dividend.

Relief at source or standard refund of withholding tax can be obtained for beneficial owners that are EU parent companies as follows:

  • Through the Double Taxation Treaty (DTT) procedure according to the provisions stated in the relevant DTT between the country of residence of the parent company and France; or
  • Through the European 0% procedure if the EU parent company and the French subsidiary company meet the conditions stated in the European Directive 90/435/EEC of 23 July 1990.

Non-Profit Organisations

The main eligibility criteria for foreign non-profit organisations to qualify for the 15% statutory withholding tax rate require that the organisation:

  • Is established in a European Union (EU) or European Economic Area (EEA) Member State that has concluded a tax treaty with France that contains a clause of administrative assistance to fight against fraud and tax evasion; and
  • Would be subject to 15% tax on dividends if their registered office was located in France.

Eligible foreign non-profit organisations that want to benefit from this regime must, before requesting the 15% withholding tax to be applied, obtain a Non-Profit Organisations Certificate issued by the Direction des Résidents à l’Etranger et des Services Généraux (DRESG).

Relief at source is available for eligible beneficial owners via Clearstream Banking, provided that the required documentation is submitted to Clearstream Banking within the indicated deadlines.

If the required documentation is not provided within the deadlines, the standard rate of 30% will be applicable by default.

Particular foreign entities

The following particular foreign entities are eligible to enjoy the benefits of the Double Taxation Treaties (DTTs) between their countries of residence and France, by means of the relief at source (simplified procedure) or the standard refund procedures, by providing the requested additional documentation.

Note: This information is included to assist customers and should not be considered to be exhaustive.

GBRs (Gesellschaft bürgerlichen Rechts – Partnership Agreement under the German Civil Code)

A GBR is not eligible as such to benefit from a DTT rate as it does not fulfil the condition of residency foreseen by the treaty. However, it is considered as a pass-through entity whose profits are taxed at the level of the partners and not at the level of the entity itself.

The GBR's partners qualify for the DTT rate under the procedure applicable to foreign transparent partnerships as introduced by the Statement of Practice (SoP) 4 H-5-07 dated 29 March 2007.

GmbH & Co. KG, KG and OHG companies

Such companies are considered as limited partnerships (sociétés en commandite simple) and are generally not subject to corporate tax but are subject to income tax.

As such, provided that the required documentation is submitted by each partner of the company, they qualify for the DTT rate.

German Special Funds (Spezial Fonds)

German Special Funds are not entitled as such to benefit from a DTT rate unless they can provide a tax attestation, issued by the German Tax Authorities, specifying that the Special Fund is subject to corporate tax in Germany.

UCITSs (other than eligible foreign CIVs), pension funds, charities, foundations/associations, trusts, partnerships etc.

As a general rule, beneficial owners for whom there is no specific provision in the DTT between their country of residence and France are considered by the FTA as not eligible for the benefits of the DTT, as they are considered as non-taxable in their home country.

If particular entities (such as Undertakings for Collective Investments in Transferable Securities (UCITSs), pension funds, charities, foundations/associations, trusts, partnerships, etc.) are effectively subject to tax in their own country of residence, then they may be eligible to benefit from a DTT, provided that a tax attestation issued by the local tax authorities of the beneficial owner is submitted, confirming that the beneficial owner is indeed subject to corporate tax at a normal rate on its income (including French-sourced income) for the relevant income year.

U.S. residents

U.S. residents are eligible to benefit from a DTT rate via the simplified or standard refund procedures. Depending on the status of the beneficial owners, different documentation or additional information may be required to obtain relief at source or apply for a standard refund.

Particular foreign entities eligible for standard refund only

The following particular foreign entities are eligible to enjoy the benefits of the Double Taxation Treaties (DTTs) between their countries of residence and France, by means of the standard refund procedure only, by providing the requested additional documentation.

Note: This information is included to assist customers and should not be considered to be exhaustive.

Canadian mutual funds

The FTA, in their Statement of Practice (14 B-1-06), provided guidance on the eligibility of Canadian mutual funds for tax treatment under the DTT between Canada and France.

Eligible funds include:

  • Mutual Fund Corporations (sociétés de placement à capital variable);
  • Mutual Fund Trusts (fiducies de fonds communs de placement);
  • Pooled Fund Trusts (fiducies de fonds mis en commun);
  • Unit Trusts (fiducies d'investissement à participation unitaire).

Tax reductions and tax exemptions are applicable as follows:

  • Only to the portion of French-sourced income that is not subject to tax in Canada and is redistributed by the mutual fund to its final beneficial owners; and
  • Only when the percentage of distribution rights held by Canadian residents meets the ownership threshold.

Canadian pension funds

The FTA, in their Statement of Practice (14 B-1-05), provided guidance on the eligibility of Canadian pension funds for tax treatment under the DTT between Canada and France.

Eligible funds include:

  • Registered Pension Plan (RPP) (Régime de Pension Agrée (RPA));
  • Registered Retirement Income Fund (RRIF) (Fonds Enregistrés de Revenus de Retraite (FERR));
  • Registered Savings Plan (RSP) (Régime Enregistré d'Epargne Retraite (REER)).

Spanish pension funds

A Spanish pension fund can enjoy tax treaty benefits provided that it meets the following eligibility criteria:

  • The fund is considered as resident in Spain under the DTT between Spain and France; and
  • The fund is subject to tax in Spain; and
  • The fund is effectively paying tax in Spain on its local and French-sourced income.

Irish mutual funds, South African pension funds and UK charities

There is no specific provision for these entities under the applicable tax treaty and so the Non-Residents Tax Office requires additional supporting documentation as proof that they are subject to tax in their country of residence.

Foreign Collective Investment Funds (CIVs)

Two categories of foreign CIV are eligible for an exemption or reduced rate of withholding tax at source:

  • UCITS IV: UCITS established in a European Union Member State and governed by Directive 2009/65/CE of 13 July 2009 (the “UCITS IV” directive);
  • Certain alternative investment funds (AIFs) established in a European Union or European Economic Area Member State and governed by Directive 2011/61/UE of 8 June 2011 (the “AIFM” directive).

The applicable tax rate varies according to the type of distributing security, as follows:

  • Full exemption of withholding tax on French-sourced dividend income; or
  • A 15% withholding tax rate on French-sourced dividend income distributed by Sociétés d’Investissement Immobilier Cotées (SIICs) or Sociétés de Placement à Prépondérance Immobilière à Capital Variable (SPPICAVs).