Case C‑556/20

Schneider Electric SE and Others

v

Premier ministre
and
Ministre de l’Economie, des Finances et de la Relance

(Request for a preliminary ruling from the Conseil d’État (France))

 Judgment of the Court (Second Chamber), 12 May 2022

(Reference for a preliminary ruling – Approximation of laws – Directive 90/435/EEC – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Article 4 and Article 7(2) – Prevention of economic double taxation of dividends)

1.        Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Prevention of economic double taxation – Tax exemption, with regard to the parent company, of dividends received – Tax measure, adopted by the Member State of a parent company, providing for the levy of an advance payment of tax when that company redistributes dividends that have not been subject to corporation tax at the ordinary rate – Taxation exceeding the 5% ceiling provided for in Directive 90/435 – Not permissible – Possibility for the parent company to benefit from a tax credit – Irrelevant

(Council Directive 90/435, Art. 4)

(see paragraphs 41-49, 52-54, 58-65, 88, operative part)

2.        Approximation of laws – Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States – Directive 90/435 – Tax exemption, with regard to the parent company, of dividends received – Exception for domestic or agreement-based provisions designed to eliminate or lessen economic double taxation of dividends – Tax measure, adopted by the Member State of a parent company, providing for the levy of an advance payment of tax when that company redistributes dividends that have not been subject to corporation tax at the ordinary rate – Precluded

(Council Directive 90/435, Art. 7(2))

(see paragraphs 67-88, operative part)

Résumé

The company Schneider Electric SE and other companies, which all have their residence for tax purposes in France, redistributed to their shareholders, in the period from 2000 to 2004, dividends received from subsidiaries established, inter alia, in other Member States.

On account of that redistribution, those companies were subject to an advance payment of tax mentioned in the administrative comments. Taking the view that those administrative comments repeated provisions of national law (1) that were incompatible with the Parent-Subsidiary Directive, (2) they brought before the Conseil d’État (Council of State, France) an action for their annulment. According to the national legislation, the advance payment of tax was payable in the event of a distribution of profits giving rise to the allocation of a tax credit, where those profits had not been subject to corporation tax at the ordinary rate at the level of the parent company. In that regard, the Conseil d’État (Council of State) inferred from the Accor judgment (3) that the company in receipt of the dividends is entitled to a tax credit which ensures that dividends originating from companies established in France and those originating from companies established in another Member State are given the same tax treatment, a tax credit which may be set off against the advance payment of tax.

Ruling on a question referred by that court for a preliminary ruling, the Court of Justice holds that the Parent-Subsidiary Directive (4) precludes such national legislation – which provides that a parent company is liable for an advance payment of tax in the event of redistribution to its shareholders of profits paid by its subsidiaries, where those profits have not been subject to corporation tax at the ordinary rate – where the sums due in respect of that advance payment of tax exceed the 5% ceiling provided for in that directive. Furthermore, such an advance payment of tax is not covered by the provision of the Parent-Subsidiary Directive according to which that directive is not to affect the application of domestic or agreement-based provisions designed to eliminate or lessen economic double taxation of dividends. (5)

Findings of the Court

The Court notes, first of all, that the Parent-Subsidiary Directive seeks to ensure the fiscal neutrality of the distribution of profits by a subsidiary established in one Member State to its parent company established in another Member State. In order to achieve that objective, that directive aims to avoid economic double taxation of profits, in other words, to avoid taxation of distributed profits, first, in the hands of the subsidiary and, then, in the hands of the parent company. (6) In that regard, the Court states that the Parent-Subsidiary Directive prohibits Member States from taxing the parent company in respect of the profits distributed by the subsidiary to its parent company, without distinction as to whether the taxable event of the taxation is the receipt of those profits or their redistribution.

Next, the Court finds that taxation of the profits distributed by a subsidiary to its parent company by the Member State of the parent company at the level of that company when they are redistributed, which would have the effect of subjecting those profits to taxation exceeding the 5% ceiling provided for in the Parent-Subsidiary Directive, (7) would result in double taxation at the level of the parent company, which is prohibited by that directive. In that regard, the Court observes that the application of the advance payment of tax, which corresponded to the tax credit applied to the dividends redistributed by the parent company to its shareholders, meant that those dividends were subject to taxation exceeding the 5% ceiling, which is prohibited by the Parent-Subsidiary Directive.

Lastly, the Court rules out a tax credit for parent companies which have received dividends from a subsidiary established in another Member State – granted to remedy the incompatibility of national legislation with EU law – from being able to remedy the effects of national legislation that are incompatible with the Parent-Subsidiary Directive. In such a case, the obtention of the tax credit is subject to the initiation of administrative and judicial procedures and to the production of evidence by the taxpayer, whereas that directive does not allow for the imposition of such conditions. Furthermore, the taking into account of the tax credit leads to an imputation method being applied to the dividends, whereas the Member State has opted for the exemption method, and does not exclude the possibility that a balance in respect of the advance payment of tax may remain.

As for the question of whether the advance payment of tax is covered by Article 7(2) of the Parent-Subsidiary Directive, the Court notes that that provision allows only for the preservation of the application of domestic or agreement-based systems which are consistent with the purpose of that directive and which are designed to eliminate or lessen economic double taxation of dividends alone. In the light of that objective, a tax levy could fall within the scope of that provision if its application did not nullify the effects of domestic or agreement-based provisions designed to eliminate or lessen that double taxation.

In that regard, the Court observes that, even though the advance payment of tax was part of the national provisions designed to prevent economic double taxation of dividends at national level, the application of that advance payment of tax was liable to have the effect of subjecting the profits received by a parent company from its subsidiaries established in another Member State to economic double taxation at the time of their redistribution. The Court adds that the application of national legislation which results in such double taxation cannot be compatible with the objective of the Parent-Subsidiary Directive, even where the effects of that double taxation may be lessened by a subsequent claim for repayment of the amounts wrongly paid in the form of a tax credit granted by the courts.

1      Article 223e of the code général des impôts français (French General Tax Code), in the version applicable to the facts in the main proceedings.

2      Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (OJ 1990 L 225, p. 6) (‘the Parent-Subsidiary Directive’).

3      Judgment of 15 September 2011, Accor (C‑310/09, EU:C:2011:581).

4      Article 4(1) of the Parent-Subsidiary Directive.

5      Article 7(2) of the Parent-Subsidiary Directive.

6      Article 4(1), first indent, of the Parent-Subsidiary Directive.

7      Article 4(2) of the Parent-Subsidiary Directive.