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Taxation of Dividends in France by Non-Resident

Tuesday 06 October 2020

A UK resident who sold dividends held in a French company is taxable in France on the capital gain.

Under the terms of the UK-France Double Taxation Convention, capital gains on the sale of dividends by a non-resident are taxable in their country of residence.

Thus, dividends in a French company sold by a UK national who was not resident in France are taxable in the UK. This is in line with the general rule that capital gains on investments by non-residents are not taxable in France.

However, a subsidiary clause in the treaty also states that the capital gain may be taxed by the State whose beneficiary is no longer resident at the time of their realisation, provided that they had been resident in all or part of the previous six years. The clause states:

'The provisions of paragraph 5 shall not affect the right of a Contracting State to levy according to its law a tax chargeable in respect of gains from the alienation of any property on a person who is, and has been at any time during the previous six fiscal years, a resident of that Contracting State or on a person who is a resident of that Contracting State at any time during the fiscal year in which the property is alienated.'

This subsidiary rule is designed primarily to combat tax abuse.

If they do decide to tax, the State is required to deduct from the charge any tax already paid by the seller in their country of residence in order to avoid double taxation.

In a recent case in the French courts, a British non-resident who sold shares in France sought to argue that the right of the French administration to tax dividends they sold required two conditions be met: residence in France in the year of the transfer and residence in France in all or some the six years preceding it.

The Court of Appeal in France did not accept this position, which they considered would render the anti-abuse clause unenforceable, as it was specifically intended to depart from the principle of the allocation of tax competence to the State of residence (the UK in this case).

Separate rules are in place for companies.

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