Arsene Taxand - M&A Private Equity

Time is money: the précompte mobilier paid will soon be refunded (with default interest) ?

The first protests and legal proceedings regarding the incompatibility of the avoir fiscal (special French tax credit on dividends) and the précompte (special French equalization tax on dividends) with EU law date back to the beginning of this century...


The information has now been made public – the 7th Division of the Administrative Court of Versailles recently held that the system of the avoir fiscal and the précompte constituted a restriction to the free movement of capital (Article 56 of the Treaty) without there being any acceptable justification for this system under EU law. It therefore granted the refund of the amounts paid in respect of the précompte mobilier.


In so doing, the Administrative Court chose to follow the conclusions of the law officer (commissaire du Gouvernement), Mr. Grau, who, on the basis, notably, of the now well-known Manninen decision (ECJ September 7, 2004, case 319/02, Grand Chamber), concluded that the avoir fiscal and the précompte were incompatible with EU law.


For Arsene, the two main areas for objections in litigation of this kind remain the following:

1) Incompatibility of the avoir fiscal and the précompte with the principles of freedom of establishment (Articles 43 and 48 of the Treaty) and free movement of capital (Article 56), which is unjustified in the light of the derogatory measures provided for by EU law;

2) Incompatibility of the précompte with Article 4 of the Parent-Subsidiary Directive (Council Directive 1990/435/EEC) of July 23, 1990.


Although the Court only based its position on Article 56, we note that the law officer also concluded that the précompte is incompatible with the Parent-Subsidiary Directive.


Both the clear terms of the Manninen decision and the change in French legislation in this area (we are obviously thinking here of other lawsuits brought only a short time ago with reference to another change in legislation...) undoubtedly contributed to a decision made in favour of the taxpayer in the lower courts despite the financial stakes involved for the French government.


Watch out for the next episode...