by Hélène Relange, Pierre-Antoine Farhat and Alexandra Delbarre, Lamy Lexel, France

Under the terms of Article 244 bis B of the French Tax Code (“Code général des impôt”), foreign companies holding more than 25% of a French company’s share capital must pay a 25% tax (French corporate tax rate) on the capital gain realized on the sale of the company’s shares. At the same time, under certain conditions, this capital gain would be taxed at an effective rate of 3% if it was realized by a French resident company (under the long-term capital gains regime).

Even if many international tax treaties prevent the application of this 25% tax, some countries are still concerned (e.g. Austria, Spain, Hungary, Iceland, Italy, Malta, Sweden, or outside the EU: Israel, Hong Kong or Japan).

The French tax administration has, for several years, allowed companies located in the European Union to claim for a tax refund.

This is not the case for companies located in non-member states, which despite recent changes in the legislation (in particular June 30, 2021), still cannot obtain a systematic refund.

The French supreme administrative Court (“Conseil d’Etat”) recently ruled that the tax provided by Article 244 bis B of the French General Tax Code, which is levied on the capital gain on the sale of substantial shareholdings realized by a company located outside the European Union, was contrary to the free movement of capital (CE, 12/21/2022, n° 447568, Runa Capital).

Thus, the Court confirmed that the French Tax Administration is required to grant the tax refund requested by the company.

Even if this reimbursement is limited to the amount necessary to replace the company back in a situation identical to the one of a French resident company, new claim opportunities seem to be opened by this ruling. The companies located in a non-member state are now entitled to request the application of the long-term capital gains regime (3% vs. 25%), when all other conditions are otherwise satisfied.

For all disposals made since 01/01/2021 (or earlier if the litigation has already been introduced), refund claims can now be filed with a good chance of success:


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