As part of strengthening measures to combat so-called "CumCum" dividend arbitrage practices, the finance law for 2025 introduced certain modifications regarding the taxation of individuals associated with entities residing outside France. Lexbase interviewed Antoine Aufrand, Tax and Wealth Engineer, Founder and Manager of the Hypérion Strategy firm.

Can you explain the rules regarding withholding tax on dividends?

The French regime for withholding tax on dividends distributed to non-residents is based on a clear normative foundation, established by Article 119 bis, 2 of the General Tax Code No. Lexbase: L5816M8W. This article states that income distributed by legal entities established in France to individuals who do not have their tax residence or headquarters there is subject to withholding tax, collected at the time of payment of the income.

This withholding is applied at the common rate of 12.8% for individuals, a rate aligned since 2018 with the flat tax. For legal entities, the rate is set at 25%, also since 2022, in line with the common corporate tax rate. However, this rate can be increased to 75% when the beneficiary is a resident of a non-cooperative state or territory as defined by Article 238-0 A of the CGI No. Lexbase: L6050LMZ.

These rates, established under domestic law, are subject to the contrary stipulations of international tax treaties. These treaties may provide for reduced rates or even a complete exemption from withholding tax in France when the treaty establishes exclusive taxation in the state of residence. This is notably the case for certain treaties concluded with the United Arab Emirates, Qatar, or Kuwait.

This treaty framework, combined with the absence of withholding tax for certain French residents (exemption by right or due to their status), has led to "CumCum" dividend arbitrage practices. These involve a non-resident investor temporarily transferring ownership of shares to a French tax resident just before the dividend detachment date to benefit from reduced or even zero taxation. The dividend is thus received with little or no withholding tax before the shares are returned to their original owner. The net gain is shared between the parties involved in the arrangement.

To combat these schemes, the finance law for 2019 introduced Article 119 bis A of the CGI No. Lexbase: L5817M8X. This provision states that dividends paid as a result of transfers or temporary transfers of shares occurring within a 45-day period including the detachment date are deemed subject to withholding tax, unless proven otherwise. This is a specific anti-abuse measure based on a presumption of fraud.

What changes have been made by the finance law regarding these aspects?

The finance law for 2025 significantly alters the balance of the existing regime in response to a ruling by the Council of State that censured the previous administrative position. It introduces three notable adjustments.

First, starting from February 16, 2025, it includes an express reference to the "beneficial owner" in the text of Article 119 bis of the CGI. Until now, this notion was only present in administrative doctrine, which had been invalidated by the Council of State in its ruling of December 8, 2023 (CE Contentieux, December 8, 2023, No. 472587, published in the Lebon collection No. Lexbase: A859817L). The administrative judge had ruled that the administration could not condition the application of tax treaties on the status of beneficial owner without an express legal basis.

Second, starting January 1, 2026, the law stipulates that even in the presence of an exempting treaty, withholding tax must be applied by default. The beneficiary can only obtain a refund if they demonstrate that they are the beneficial owner of the dividends and that they meet all the conditions set out in the treaty. This represents a reversal of the previously accepted logic: the burden of proof for exemption now rests on the taxpayer.

Finally, paying establishments will be required to systematically apply withholding tax according to domestic rates unless the beneficiary provides all elements justifying their right to exemption from the outset, including the tax residence certificate (form 5000) and supporting documents related to the status of beneficial owner.

This new framework establishes a materialistic approach, focused on the economic reality of flows and entities. It represents a clear shift towards a logic of transparency, based on substance rather than form.

The tax administration provided clarifications on these new measures in a ruling dated April 17. What elements were provided by the administration?

The ruling of April 17, 2025, offers two types of expected clarifications: on the triggering event for withholding tax and on the temporal application of the new regime.

Regarding the triggering event, the administration distinguishes between direct dividend payments and value transfers. In the first case, withholding tax is due at the payment date. In the second case, it becomes due as soon as the agreement on the subject (i