Background
Further to the decision of the European Court of Justice in the Santander case in 20121, the French legislator introduced under French law an exemption from French withholding tax on French-source dividends distributed to foreign CIVs under certain conditions2.
In order to benefit from the exemption, foreign CIVs must notably evidence to the French tax authorities that they raise funds from a certain number of investors in view of investing them in accordance with a defined investment policy in the interest of such investors and present characteristics similar to French undertakings for collective investment in transferrable securities or certain alternative investment funds.
Evidencing the similarity of CIVs located in the EU (the "EU CIVs"), or in the EEA, with French ones should not be problematic for those registered under the framework of the EU directives 2009/65/EC dated 13 July 2009 ("UCITS IV") or 2011/61/EU dated 8 June 2011 ("AIFMD").
The situation is less straight forward for EU-CIVs not registered as such, and for foreign CIVs located outside the EU in a treaty protected country (the "Non-EU CIVs")3.
Seven years after the publication of the first administrative guidelines on this topic4, the French tax authorities just released a new set of comments reiterating most of the existing guidelines for EU-CIVs and introducing a specific procedure for Non-EU CIVs to benefit from the withholding tax exemption.
Reminder of the existing two process available
Foreign CIVs can benefit from an immediate withholding tax exemption if they certify to the paying agent that they are comparable to a French CIV in a specific form (BOI-FORM-000037/86) before the cash instruction. In practice, EU-CIVs registered under the UCITS IV and AIFMD Directives can provide with said certificate.
Absent such certificate, the paying agent levies the withholding tax on the distribution and the foreign CIV can claim for a refund if it can demonstrate to the French tax authorities that it is comparable to a French CIV.
Once the foreign CIV has obtained its refund from the French tax authorities, it can benefit from the immediate withholding tax exemption during the two years following such refund.
Precision of the comparability test of Non-EU CIVs
To be exempt from withholding tax on French source dividends, Non-EU CIVs must pass a comparability test with French CIVs. In their new guidelines, the French tax authorities clarify the various criterion to be met by a Non-EU CIV in order to qualify as comparable to a French CIV, in terms of:
Purpose (i.e. raising funds from a certain number of investors in view of investing them in accordance with a defined investment policy in the interest of such investors);
- Absence of control by unitholders;
- Approval, authorization, registration and supervision;
- Information to be provided to unitholders prior to any subscription;
- Management;
- Existence of an independent depositary / custodian;
- Existence of an investment and risk-sharing policy; and
- Certification of the annual accounts by an independent auditor.
New forms for claims filed by Non-EU CIVs
Until the recent guidelines, the only form available was the form BOI-FORM-00037/86 whereby foreign CIVs could attest that they met all the criterion of the comparability test. In practice, this form was appropriate to EU-CIVs.
A new form, specifically designed for Non-EU CIVs has been set-out (BOI-FORM-000089). It reiterates the various conditions to be met and, for each of them, it lists the evidence to be provided. This form will be filed by Non-EU CIVs with the French tax authorities in order to get the refund of withholding tax.
This form will also be used (once Non-EU CIVs have obtained a refund) in order to benefit from the immediate exemption during two years after the withholding tax refund. In this instance, the form will be provided to the paying agent in advance to the cash payment, together with the decision from the French tax authorities granting the refund.
In practice
This new process clarifies the information expected by the French tax authorities and will facilitate the process in evidencing the comparability of Non-EU CIVs with French ones.
In addition, based on our practice, we note that the services of the French tax authorities in charge of the withholding tax claims are cluttered, with thousands of files to instruct, and repay the withholding tax with significant late interest whenever the decision is granted after several years. Accordingly, the implementation of the new form could be a time-saver for both the public treasury and the Non-EU CIVs.
1. ECJ, 10 May 2012, Santander Asset Management SGIIC and Others, C-338/11 to C-347/11. Ashurst advised Santander Asset Management SGIIC in this matter.
2. Cf. Article 119 bis, 2° of the French tax code.
3. i.e. in a country having entered with France into an administrative assistance convention in view of fighting against fraud and tax evasion.
4. BOI-RPPM-RCM-30-30-20-70 released on 6 August 2013.
Authors: Emmanuelle Pontau-Faure and Solène Guyon
