New: The 3% contribution on distributed income has been deemed incompatible with the European Parent-Subsidiary directive, and this will pave the way for the filing of a certain number tax relief claims.

Companies subject to corporation tax, excluding those that meet the European definition of an SME, are now liable for an additional corporation tax contribution equal to 3% of the distributed amounts.

The contribution applies to all of the income distributed by a French parent company, including the redistribution of profits from subsidiaries located in other European Union member states. In this context, the Court of Justice of the European Union has ruled that this 3% contribution is incompatible with the European Parent-Subsidiary directive obliging member states not to tax distributed income received by a parent company from its subsidiaries.

CJEU 17 May 2017 C-365/16

Our recommendation: Following this ruling, last July the Council of State submitted a request to the Constitutional Council for a priority constitutionality ruling on the Constitutional compliance of these contribution conditions. Before the Constitutional Council issued its ruling, it is in the best interest of companies that have already paid the 3% contribution to file a claim for tax relief with the tax authorities without delay.

Please note: the Government has announced the removal of the 3% contribution for payments made as of 2018. This provision is included in the draft Budget Bill for 2018.