France’s tax authorities issued Ruling No. BOI-RES-RPPM-000203 on 17 April 2025, clarifying domestic withholding tax rules on dividend arbitrage.

The ruling, following amendments in the 2025 Finance Law, introduces a beneficial ownership requirement under article 119 bis(2) of the General Tax Code and expands the scope of abusive practices, such as Cum-Cum schemes, subject to withholding tax under article 119 bis A. It also explains how these provisions relate to the abuse of law doctrine in France’s Fiscal Procedure Code.

The French tax code articles 119 bis and 119 bis A have been updated to introduce new provisions regarding the withholding tax on income distributed by French companies to non-residents. These changes particularly affect dividend transfers within financial structures known as “CumCum” transactions.

Clarifications have been made regarding how withholding tax applies to various financial transactions, especially those related to dividend arbitrage, foreign investment funds, sovereign wealth funds, and financial derivatives. The document also explains the specific conditions under which exemptions from withholding tax can be applied to these operations.

In addition, it covers the treatment of non-linear financial instruments, noting that withholding tax applies to those with economic effects similar to owning underlying shares. However, financial instruments that do not exhibit such a correlation are excluded from the scope of these provisions.

The guidelines also discuss transactions taking place on regulated markets. These transactions will not require withholding tax if the paying institution does not have knowledge of the counterparty, under certain circumstances.

The document confirms that exemptions from withholding tax continue to apply to foreign collective investment bodies (OPCs) and sovereign funds, provided they meet specific conditions outlined in the tax code. Furthermore, it addresses how these provisions apply to operations involving financial indices, as long as those indices simulate the economic effects of holding shares.

Regarding short-selling hedging, it is stated that transfers related to these operations will be subject to withholding tax if the economic effect of the transaction resembles share ownership, even if the transaction aims to hedge short sales.

The document clarifies the base for withholding tax, confirming that it is calculated based on the actual dividend income received by non-residents, without exceeding the amount they would have received directly from the French company.

It also highlights that these provisions apply to dividends paid to individuals residing in countries with which France has double taxation agreements that either exempt these dividends from withholding tax or provide for a reduced rate. However, the new rules do not apply in cases where the dividends are subject to a zero withholding tax rate under specific corporate tax regimes.

The implementation timeline for these changes is provided, specifying that the new provisions will apply to payments made from 16 February 2025, for direct payments, and for operations resulting in value transfers where agreements are made from that date onward.

Lastly, the document stresses that the tax abuse provisions under French law apply to all situations that may be deemed abusive, irrespective of whether the new withholding tax provisions apply directly to the transactions in question.