France: Exempt entities not entitled to the Double Taxation Treaty benefits

Effective

immediately

the French Administrative Supreme Court ("Conseil d’Etat") has recently ruled that entities exempt from tax in their country of residence cannot benefit from the provisions of the Double Taxation Treaty (DTT) signed between their country of residence and France.

Background

On 9 November 2015, The French Administrative Supreme Court rendered two decisions (No.370054 and No.371132) ruling that a person, such as a pension fund, that is exempt from tax in a contracting state, by reason of its status or activity, cannot be considered as liable to taxation within the meaning of the articles of the DTT, respectively Article 2(1)(4)(a) of the France-Germany Income and Capital Tax Treaty (1959) as amended through 2001 (The Treaty) and Article 4(1) of the France-Spain Income and Capital Taxation Treaty (1995) (The Treaty). As a consequence, such persons cannot be considered as a resident of the contracting state under the Treaty.

Impact on customers

Entities not subject to tax in their country of residence do not qualify as resident within the meaning of the tax treaty and are therefore not eligible to the benefits of the DTT, unless explicitly specified otherwise in the applicable tax treaty.

Both decisions of the French Administrative Supreme Court confirm the position that has always been supported by the French Tax Authorities and by our French depository regarding the eligibility to tax treaty benefits.

Even though these decisions concern the application of the Treaties signed by France with Germany and Spain, it appears that they should be considered as a principle and applicable to all tax treaties signed by France.

Action to be taken

It is the responsibility of the beneficial owners (BO) to ensure that they are entitled to the benefit of the tax treaties before filling their certification.

According to the procedures currently in place (refer to Market Taxation Guide – France) certain categories of investors such as the investment schemes, have to provide a specific tax attestation, issued by their local tax authorities, certifying that they are effectively taxable on their entire income, including French-source income.

Our French depository, BNP Paribas Securities Services clarified that it reserves its right to request such an additional tax attestation from any investors should they have any doubt with respect to their eligibility to the tax treaty benefits.

Further Information

For further information, customers may contact the Clearstream Banking¹ Tax Help Desk, Clearstream Banking Client Services or their Relationship Officer.

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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500, and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.