Beneficial ownership: an autonomous condition beyond anti-abuse rules
In a landmark ruling dated 8 November 2024 (CE, no. 471147), the French Conseil d’État reaffirmed the importance of demonstrating beneficial ownership (BO) to benefit from withholding tax (WHT) exemptions on outbound dividends. The case involved a French subsidiary distributing dividends to its Luxembourg parent company, which immediately transferred the funds to its sole shareholder. I analyse here the key takeaways from this decision, with a focus on its legal basis, reasoning and practical impact for international groups.
1. The French domestic rules on outbound dividend withholding tax
Articles 119 bis and 119 ter of the French Tax Code
- Article 119 bis: a 30% WHT applies to dividends paid to non-resident recipients unless a domestic or treaty-based exemption applies.
- Article 119 ter: provides a WHT exemption where:
- The recipient is a parent company resident in the EU/EEA (subject to administrative assistance clauses); and
- The recipient qualifies as the beneficial owner of the dividend.
This provision transposes the EU Parent-Subsidiary Directive (90/435/EEC), which aims to prevent double taxation within corporate groups, while tackling abuse.
2. The dispute: a challenge to beneficial ownership
The case concerned a dividend advance of €3.6 million paid by a French subsidiary to a Luxembourg holding company, which immediately upstreamed the funds to its own shareholder and had no significant activity.
The French tax authorities denied the exemption, arguing that the Luxembourg entity lacked beneficial ownership over the dividend income.
The taxpayer argued this amounted to a disguised use of the anti-abuse procedure under French law.
3. Beneficial ownership: an autonomous legal test
The taxpayer’s argument
The taxpayer claimed that the tax authorities were, in substance, applying Article L. 64 of the French Tax Procedures Code (LPF), which governs tax abuse cases, without following the required procedural safeguards (e.g. advance notice, consultation with the anti-abuse committee).
The Conseil d’État’s ruling
The Conseil d’État rejected this view: it held that verifying beneficial ownership does not amount to invoking tax abuse. The administration simply applied the conditions of Article 119 ter, without disregarding any legal act. Hence, no procedural safeguards under L. 64 LPF were required.
This confirms that beneficial ownership is a stand-alone substantive requirement, not subject to the formalities of anti-abuse litigation.
4. Compatibility with the EU freedom of establishment
The taxpayer also argued that Articles 119 bis and 119 ter infringed the freedom of establishment under Articles 49 and 54 TFEU, by imposing stricter conditions on EU parent companies than those applied to French domestic groups.
The Court’s position
Relying on the CJUE rulings in T Danmark and Y Denmark Aps (C-116/16 and C-117/16, 26 February 2019), the Conseil d’État confirmed that the BO requirement is inherent to the Parent-Subsidiary Directive, and serves a legitimate objective.
The difference in treatment between domestic and cross-border distributions is justified by the greater risk of abuse in international settings.
Moreover, the French distributing company – though liable for the WHT – may apply for a refund on behalf of the foreign parent, which does not impose a disproportionate burden.
5. Tax treaty interpretation: a teleological approach to older conventions
The taxpayer relied on the France–Luxembourg and France–Germany tax treaties, which do not expressly include a BO condition.
The Court’s reasoning
The Conseil d’État held that even in the absence of an explicit clause, only the beneficial owner can claim treaty benefits. The Court adopted a teleological (purpose-driven) interpretation, in line with the OECD Model’s general anti-abuse rationale.
This reinforces the ability of the tax authorities to deny treaty relief in cases of artificial arrangements, even under older treaty wording.
Conclusion
This ruling by the Conseil d’État reinforces three key international tax principles:
- Beneficial ownership is a substantive condition, enforceable independently from general anti-abuse rules.
- Older tax treaties must be interpreted in line with their purpose, especially in anti-abuse contexts.
- EU freedoms are not violated, as long as the BO test is objective and proportionate.
My perspective
For international groups, this case highlights the need to ensure that holding structures demonstrate genuine substance, especially when claiming WHT exemptions under EU or treaty law.
I recommend:
- Auditing dividend flows to align them with operational reality;
- Documenting beneficial ownership through facts (staff, premises, decision-making);
- Avoiding conduit structures or purely passive intermediaries.
Need help securing your cross-border flows or filing WHT refund claims? I assist clients in structuring and defending their international tax position with clarity and precision.
S.ASSOGNA (sandro.assogna@avocat.fr)
