Section 119-ter of the General Tax Code, place of effective management and beneficial owner
A company was subject to a tax audit, following whichadministration determined that the dividends distributed to its Luxembourg-based parent company should have been subject to withholding tax pursuant to Article 119 bis of the General Tax Code.
administration that the exemption under Section 119 ter of the same code did not apply.
The reassessment was challenged all the way to the Administrative Court of Appeals.
It then noted that the Luxembourg-based company:
rents only a single office
has no employees
incurred virtually no operating costs
"The company's directors are corporate lawyers who also serve as directors of other companies"
The company's sole shareholder resides in Singapore
The Court therefore ruled that the company does not have its effective place of management in Luxembourg and that this factor alone is sufficient to preclude the application of the exemption under Article 119 ter of the General Tax Code.
It will then determine whether the tax treaty between France and Luxembourg requires the application of a reduced withholding tax rate.
The Court then ruled that while the parent company is indeed tax-domiciled in Luxembourg, it is "wholly controlled by a single shareholder, who is an individual residing in Singapore." It further noted that the company had received only dividends during the years subject to reassessment.
It concludes that even though the Luxembourg company did not distribute the funds to its shareholder, the shareholder cannot be considered the beneficial owner of the dividends.
Finally, with regard to penalties, the Court finds that "given the nature of the business it had been conducting for several years while being successively owned by several companies established abroad, the applicant company could not have been unaware of the rules governing the withholding tax on dividends paid to such companies."
The Court upholds the assessment.
This position appears questionable in several respects. Let us hope that the Conseil d'Etat asked to rule on the reasoning adopted by the Court.
It should be noted that while the Nantes Administrative Court of Appeal ruled a few weeks ago that the requirement for an effective place of management referred to in Article 119 ter is contrary to European Union law (see the article on the firm’s website), it appears that this argument was not raised by the petitioner. According to the judgment, the applicant had relied on a ruling by the CJEU, but the Court appears to have found that the appeal did not seek the application of provisions of European Union law. Indeed, it does not cite any such provision elsewhere in the judgment’s reasoning.
CAA Paris, Nov. 6, 2025, No. 24PA00725
This monitoring service is provided by Mispelon Avocat, a law firm specializing in tax audits and tax litigation. You can stay updated by subscribing to the newsletter via this link.