A restrictive interpretation of Article 119 ter: confirmation and clarification by the Paris Administrative Court of Appeal

A French holding company paid dividends to the Luxembourg company that was its shareholder.

Following a tax audit,administration that the withholding tax exemption provided for in Article 119 ter, paragraph 2, of the General Tax Code did not apply. They issued a tax assessment to subject these dividends to withholding tax.

The reassessment was subsequently challenged all the way up to the Administrative Court of Appeals.

The Court will first interpret Article 119b(2) in light of the Parent-Subsidiary Directive, and more specifically the condition regarding the requirement of tax residence in a Member State of the European Union.

It then reiterates the reasoning adopted by the Nantes Administrative Court of Appeal last October, according to which eligibility for the exemption requires that the beneficiary company “have its tax residence in a Member State of the European Union pursuant to that State’s tax legislation and not be considered to have its tax residence outside the European Union pursuant to a treaty concluded with a third country to prevent double taxation.”

The Court further notes that there is no need to identify the country where the beneficiary company has its registered office "provided that it does not have its place of effective management outside the European Union."

She then notes that:

• the Luxembourg company is the beneficial owner of the dividends and is considered by the Luxembourg tax authorities to be resident for tax purposes in Luxembourg.

• administration argue that a tax treaty would allow for the tax residence to be considered as located outside the EU.

• There is nothing in the file to suggest that the effective center of management is located outside the EU.

Finally, the Court states that theadministration argumentadministration the company had failed to demonstrate that its place of effective management was in Luxembourg rather than in Belgium or France—is without merit.

The tax assessment is therefore rescinded.

CAA Paris, Jan. 27, 2026, No. 24PA02158

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