DT7259 - Particular agreements: France: Dividends: French avoir fiscal

French companies are usually charged to tax on their domestic profits at 33 1/3 per cent. This tax, equal to 50 per cent of a dividend received, is allowed to a shareholder who is a French resident as a fiscal credit (avoir fiscal) against his liability to tax on the dividend. Some specialised French investment companies do not pay tax at normal rates and this will affect the availability of avoir fiscal. Where a dividend is paid by a French investment company, the shareholder receives a fiscal credit, with a limit of 50 per cent of the dividend paid, equal to the sum of all the tax credits, including fiscal credits (avoirs fiscaux) attached to the dividends and interest redistributed by the company.

Where a French company pays a dividend to a resident of the United Kingdom who is

a) an individual, or

b) a company which

i) controls directly or indirectly less than 10 per cent of the voting power in the French company paying the dividend, and

ii) is not entitled to tax credit relief in the United Kingdom for underlying tax,

the recipient is entitled to receive from the French Treasury a payment equal to the amount of the avoir fiscal to which a French recipient of such a dividend would normally be entitled. This payment is not due where the recipient has a permanent establishment or fixed base in France with which the holding by virtue of which the dividend is paid is effectively connected (see DT214 fifth sub-para.). Nor is it due if the company or individual is not subject to tax on the dividend in the United Kingdom. From 1 January 1988 approved pension funds also qualify for payment of the avoir fiscal by virtue of Article 9(7)(b)(ii). Payment of the avoir fiscal is deemed to be a dividend for the purposes of the agreement and, when paid to a United Kingdom resident, is subject to a French withholding tax at a rate of 15 per cent (Article 9(6)).

When paying a dividend to a non-resident, a French company will automatically deduct French withholding tax at 25 per cent from the gross amount of the dividend. The United Kingdom resident shareholder has therefore to make a claim for a reduction in the French tax to 15 per cent (or 5 per cent where appropriate-see DT7258) and to payment of the avoir fiscal where he is entitled to it. Instructions on making such claims are in DT7268. If the claim is approved the French authorities will refund to the claimant an amount comprising French tax equal to 10 per cent of the gross dividend together with the amount of the avoir fiscal less withholding tax of 15 per cent. The amount of the net refund will be shown on the copy of the claim form returned to the Inspector by the French authorities (see DT7268).

A UK resident portfolio investor (see INTM164010(f) ) who is entitled to avoir fiscal may arrange with the French payer of a dividend to receive French dividends under deduction of tax at the agreement rate of 15 per cent instead of suffering French withholding tax at 25 per cent. Details concerning the procedure for obtaining this relief at source are described at DT7267.

Where tax credit relief is claimed against United Kingdom tax on the dividend, the gross dividend for United Kingdom tax purposes will be the sum of

A the net dividend received (after deduction of French withholding tax) and

B the net amount refunded by the French authorities

grossed at 15 per cent. Tax credit relief will be available for French withholding tax at 15 per cent of this gross figure.

EXAMPLE

French tax available for credit - £225.

Where the United Kingdom resident recipient is not entitled to payment of the avoir fiscal because it is a company which controls directly or indirectly more than 10 per cent of the voting power in the French company paying the dividend, it can only claim a reduction of the French withholding tax to 15 per cent (or 5 per cent where appropriate-see DT7258 first sub- para.). See DT7268 for instructions on the method of claim.