Opportunity for a tax refund: payroll and dividend tax

Article 4 of the Parent-Subsidiary Directive provides that when a Member State opts for the exemption of dividends—as is the case in France—it may stipulate that expenses related to equity interests arising from the distribution of dividends by the European subsidiary are not deductible. The text also provides for the possibility for Member States to set a flat-rate amount for these expenses, provided that this flat-rate amount does not exceed 5% of the subsidiary’s distributed profits.

The Court of Justice of the European Union ruled last August (CJEU, August 1, 2025, C-92/24 to C-94/24) that this 5% limit applies not only to corporate income tax but also to other taxes.

The Paris Administrative Court of Appeal, for its part, had ruled prior to this decision that there were no difficulties in including dividends in the calculation of payroll tax liability (CAA Paris, July 9, 2025, No. 24PA00252). However, including dividends in this calculation indirectly results in their taxation above the 5% threshold.

The Court of Justice’s ruling thus opens up avenues for filing claims.

Who is affected?

The payroll tax is a French-specific tax that applies to employers based in France who are not subject to VAT on more than 10% of their revenue.

According to the case law of the Council of State (CE, 8th and 3rd Chambers, March 31, 2023, No. 460838, cited in the tables), a company is liable for this tax in two cases:

• when none of its total revenue is subject to VAT during the year in which the remuneration is paid (year N);

• or, alternatively, when more than 10% (actually 11%) of the previous year’s (Year N-1) revenue is not subject to VAT and does not allow for the deduction of this tax.

For the companies concerned, the tax is calculated based on wages paid (CSG base) using a progressive scale. The amount due is then multiplied by a tax liability ratio, which is calculated, barring exceptions, based on the previous year (N-1). This ratio is used to determine the amount of the tax.

The tax liability ratio is calculated as follows:

Dividends play a key role here. Although they are outside the scope of VAT, they are included in the denominator of the tax liability ratio, without giving rise to a right to deduction. Their share of total revenue can therefore push a company into the scope of payroll tax or significantly increase its tax liability ratio, thereby raising the amount of tax owed.

In this context, the following are therefore particularly subject to this tax:

• holding companies, due to the receipt of interest or dividends;

• players in the financial, insurance, or banking sectors (banks, fintech companies, insurers, brokers, crypto operators, etc.);

• groups operating in the medical sector or in the sector of vocational training exempt from VAT;

• certain companies receiving substantial non-one-time subsidies (startups or companies funded by third parties through subsidies not subject to VAT);

• companies in the gambling industry (casinos, gaming operators, etc.).

 Conversely, certain entities are exempt by law; for example, public authorities, VAT-exempt entities, and universities are not subject to this requirement. 

Strategies for assigning employees to specific activities can help mitigate the impact of the tax (sector-based allocation as provided for by law and legal doctrine).

However, these mechanisms are only partial: in practice, a company for which a significant portion of its business (particularly the receipt of dividends) is exempt from VAT will not be able to completely avoid being subject to payroll tax.

In practice, the potential exclusion of dividends from the calculation of the tax liability ratio would provide an opportunity to reduce the amount of payroll tax, or even allow certain companies to fall entirely outside the scope of this tax.

In fact, such an exclusion—if upheld—would automatically reduce the denominator of the ratio, thereby lowering the rate of payroll tax liability.

What should I do?

At this stage, it is important for companies to protect their rights by filing a claim with theadministration request a refund of payroll tax.

To provide our clients with the best possible support, we work closely with Cyplom, a firm specializing in VAT and payroll taxes.

We offer expertise in litigation procedures as well as the technical aspects of payroll tax to best answer your questions and assist you as needed.

Please feel free to contact us if you have any questions.

What is the deadline for filing a claim?

The deadline for filing a claim regarding payroll tax generally expires on December 31 of the second year following its payment (LPF, Art. R*196-1).

The Council of State has clarified that periodic payments made during the course of a year are considered merely advance payments. Thus, the payroll tax due on compensation paid during 2022 is definitively assessed in 2023, and claims for that year may be filed until December 31, 2025.

Depending on the circumstances, it is also possible to request the application of special claim deadlines that allow claims to be filed for prior years.