The European Commission has launched infringement proceedings against France over rules requiring foreign parent companies to have their “place of effective management” in an EU Member State to qualify for withholding tax exemptions under the Parent-Subsidiary Directive.
The European Commission sent a letter of formal notice to France for applying national criteria to determine whether a parent company qualifies for a withholding tax exemption on subsidiary distributions, in its March 2026 infringements package. The Commission considers this requirement to be inconsistent with the EU Parent-Subsidiary Directive (Council Directive 2011/96/EU).
This Directive provides that no withholding tax is levied when a subsidiary distributes its profits to its parent company in another Member State, and that such profits are also not taxed again at the level of the parent company. This ensures that the same profits are taxed only once, in the Member State of the subsidiary, and that European companies do not suffer double taxation when they are active in the internal market. This is key for their competitiveness.
However, France only exempts from withholding tax profits distributed by a French subsidiary to its parent company in another Member State if the parent company’s “place of effective management” is located in a Member State. Under the Parent-Subsidiary Directive, a parent company is any company that, under the tax legislation of the Member State concerned, is considered to be resident for tax purposes in that state.
France cannot unilaterally apply its own criteria to foreign parent companies to contest their status and deny the tax benefits of the Directive by applying a withholding tax on transfers from a French subsidiary to its parent located in another EU Member State.
The Commission therefore sent a letter of formal notice to France, which now has two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
