In two landmark rulings issued in November 2024, the French Conseil d'État applied the beneficial ownership concept – drawing directly on the CJEU's Danish-cases framework – to deny withholding-tax exemptions and, separately, to uphold an abuse-of-law challenge against a parent-subsidiary structure. Taken together, Foncière Vélizy Rose (CE no. 471147, 8 November 2024) and Société Hellier du Verneuil (CE no. 469012, 29 November 2024) signal a material tightening of France's approach to dividend flows within multinational groups. International investors channelling income through intermediate holding companies should treat these decisions as a direct prompt to reassess existing tax structuring arrangements.
Legal Framework: Beneficial Ownership and the Parent-Subsidiary Regime in France
France implements two overlapping regimes for cross-border dividend flows within corporate groups. The first derives from the EU Parent-Subsidiary Directive (PSD) and its domestic transposition, which exempts dividends paid to qualifying parent companies from withholding tax. The second arises under bilateral tax treaties, which routinely reduce or eliminate withholding tax where the recipient qualifies as the beneficial owner of the income.
Historically, French courts and the tax administration applied these two regimes with some degree of independence. A company satisfying the formal conditions under the PSD – shareholding threshold, holding period, legal form – could generally claim exemption without detailed scrutiny of what it did with the dividend. The beneficial-ownership concept was treated, in the treaty context, largely as an instrument to prevent conduit arrangements involving third-country residents.
The CJEU's 2019 Danish cases changed the landscape fundamentally. The Court held that EU law does not require member states to grant PSD benefits to arrangements that are wholly artificial or whose main purpose is to obtain a tax advantage. It further confirmed that beneficial ownership, read through the lens of the OECD Commentary, is an autonomous EU concept capable of denying treaty and directive benefits where the immediate recipient lacks genuine economic control over the income. The Conseil d'État's 2024 rulings now embed that logic firmly in French domestic case law.
Foncière Vélizy Rose (CE no. 471147, 8 November 2024): Beneficial Ownership Denied
In Foncière Vélizy Rose, the Conseil d'État examined dividends paid by a French company to its Luxembourg parent. The Luxembourg entity received the dividends and, on the facts, passed them on – either contractually or as a matter of practical necessity – to its own parent further up the chain. The court concluded that the Luxembourg company was not the beneficial owner of the dividends because it lacked genuine discretion over the income: its role was essentially that of a conduit, interposed between the French source company and the ultimate recipient.
The court applied the CJEU Danish-cases framework without significant modification. The key analytical steps were:
- Objective element: the arrangement was not genuine in the sense that the intermediate entity had no real economic function beyond the transmission of income.
- Beneficial ownership test: the Luxembourg company had no real power to "use and enjoy" the dividends; the income was effectively pre-committed to an onward transfer.
- Consequence: the withholding-tax exemption – whether derived from the PSD or from the applicable tax treaty – was denied, and withholding tax became due at source in France.
This decision confirms that the beneficial-ownership enquiry in France is now substantive rather than formal. Holding company vehicles that exist principally to route dividends, without genuine treasury or management functions, are at meaningful risk of challenge. The decision is particularly relevant for structures involving Luxembourg, the Netherlands, and other EU jurisdictions that have historically been used as holding platforms precisely because of their favourable withholding-tax treatment.
If you are reviewing the resilience of an existing holding structure in light of Vélizy Rose, Ferraz & Whitmore can assist with a structured risk assessment. Please contact us at info@ferrazwhitmore.com or visit our contacts page.
Hellier du Verneuil (CE no. 469012, 29 November 2024): Abuse of Law in the Parent-Subsidiary Regime
Decided three weeks later, Hellier du Verneuil engaged a related but distinct legal instrument: the French abuse-of-law doctrine (abus de droit). The Conseil d'État applied this doctrine in the context of the domestic parent-subsidiary regime, concluding that the arrangement in question had been structured principally to obtain the benefit of that regime rather than for genuine commercial reasons.
The abuse-of-law analysis under French law traditionally requires either a fictitious act (acte fictif) or a literal application of a legal text contrary to the legislator's intentions. In Hellier du Verneuil, the court's reasoning aligned with the dual-element test now well established at EU level: an objective element (the arrangement lacked genuine substance) and a subjective element (the obtaining of a tax advantage was the predominant purpose). This convergence with EU anti-avoidance methodology is significant: it suggests that French courts are increasingly willing to read domestic abuse-of-law provisions in light of the CJEU's general anti-abuse rule jurisprudence, rather than treating them as entirely self-contained instruments.
The practical consequence is that a group cannot rely on the mere formal qualification for the parent-subsidiary regime – satisfying the shareholding and holding-period requirements – if the surrounding facts indicate that the structure serves no purpose beyond capturing the exemption. Tax structuring that exploits technical thresholds without corresponding economic substance is now more vulnerable to challenge.
The CJEU's Nordcurrent Group Decision (C-228/24, 3 April 2025): Confirming the Direction of Travel
Shortly after the two Conseil d'État decisions, the CJEU delivered its judgment in Nordcurrent Group (C-228/24, 3 April 2025). The Court confirmed that the PSD's general anti-abuse rule applies not only to the directive's own withholding-tax exemption but also to national participation exemptions that member states maintain independently of the directive. This is a material extension: it means that even where a group seeks to rely on a purely domestic participation exemption rather than the PSD, the EU anti-abuse standard – requiring both an objective element (a non-genuine arrangement) and a subjective element (the main purpose of obtaining a tax advantage) – can be invoked.
For French practitioners, Nordcurrent Group removes a potential line of argument: the suggestion that a structure falling outside the formal scope of the PSD might escape EU anti-avoidance scrutiny by relying on the domestic régime mère-fille. The CJEU's reasoning forecloses that route, at least where an EU cross-border element is present. The decision also reinforces the conceptual alignment between the EU general anti-abuse rule and the beneficial-ownership analysis applied in Vélizy Rose, since both enquiries ultimately ask whether the interposed entity has genuine economic substance and whether the arrangement serves a purpose beyond tax optimisation.
Practical Impact on Tax Audit Risk in France
The combined effect of the two Conseil d'État decisions and Nordcurrent Group is to raise the tax risk profile of a wide range of structures that are currently common in inbound investment into France. The following types of arrangement warrant particular attention:
- Holding companies without local substance: entities incorporated in low-withholding jurisdictions but lacking employees, decision-making capacity, or genuine treasury functions are the primary target of the beneficial-ownership and anti-abuse analyses.
- Back-to-back dividend flows: structures where dividends received by an intermediate holding are passed upward under pre-arranged timelines or pursuant to group cash-pooling agreements are at elevated risk of being characterised as conduit arrangements.
- Special-purpose vehicles used for real-estate investment: the Vélizy Rose facts involved a property vehicle, and the French tax administration has long focused on real-estate holding structures in its tax audit activity. This case is likely to sharpen that focus.
- Structures relying on treaty shopping: arrangements designed to route dividends through an intermediate jurisdiction principally to access a more favourable tax treaty will now face scrutiny under both the beneficial-ownership doctrine and the abuse-of-law rules.
- Transfer pricing interactions: where a holding entity charges management fees or interest to justify its existence, the Conseil d'État's reasoning implies that mere documentation of inter-company transactions will not suffice; the economic reality of the entity's function must be demonstrable.
From a procedural standpoint, a challenge founded on beneficial ownership or abuse of law can arise at the level of the withholding tax collected at source, but it can also be raised in the context of a broader tax audit covering corporate income tax, transfer pricing adjustments, or the thin-capitalisation rules. Groups should anticipate that French tax audit teams, which operate under the supervision of the Direction générale des finances publiques, are now equipped with clear case-law authority to challenge structuring arrangements that previously appeared robust.
Cross-Border Implications and Interaction with Other Regimes
The French decisions do not operate in isolation. Several cross-border dimensions merit attention for international groups.
Treaty relationships: where France has concluded a bilateral tax treaty with the jurisdiction of the intermediate holding company, the beneficial-owner test now operates as a gateway condition: satisfaction of the formal treaty requirements (residence, legal form, shareholding percentage) is necessary but not sufficient. An entity that is not the beneficial owner of the dividend cannot access treaty-reduced withholding rates, regardless of its formal treaty residence. The applicable rate – and indeed the liability to withhold – will then be determined by reference to the ultimate recipient, which may be resident in a jurisdiction with a less favourable treaty relationship with France, or with no treaty at all.
Interaction with the AMF and ACPR frameworks: for groups that combine investment holding with regulated financial activity, the beneficial-ownership analysis intersects with anti-money-laundering obligations administered by the AMF (Autorité des marchés financiers) and the ACPR (Autorité de contrôle prudentiel et de résolution). The identification of beneficial owners for regulatory purposes does not automatically determine the outcome of the tax analysis, but inconsistencies between declared regulatory ownership and the economic substance claimed for tax purposes can attract scrutiny.
Comparison with other jurisdictions: the Conseil d'État's approach in these cases is consistent with the direction taken in other EU member states. Readers interested in how similar principles are being applied in Spain may find the analysis in our Spanish beneficial ownership TEAC 2024 deep-dive instructive. For groups with exposure across multiple jurisdictions, coordinated advice that maps treaty positions, substance requirements, and anti-avoidance risks across the full holding chain is increasingly important.
Open Questions and Interpretive Uncertainties
Notwithstanding the clarity these decisions bring on the general framework, a number of interpretive questions remain open and will likely generate further litigation.
What level of substance is sufficient? The decisions identify conduit entities lacking any meaningful function as the primary target, but they do not establish a bright-line test for when an intermediate holding company has enough substance to qualify as beneficial owner. The factual enquiry will inevitably be granular: boards of directors with local members, local bank accounts, genuine treasury or risk management functions, and documented decision-making processes all contribute to the analysis, but no single factor appears determinative.
Subjective element in practice: the abuse-of-law and anti-abuse analyses both require a subjective element – the predominant purpose of obtaining a tax advantage. In practice, demonstrating that a commercial purpose existed at the time of structuring requires contemporaneous documentation. Groups that restructured several years ago may find it difficult to reconstruct the evidence of commercial intent required to resist a challenge.
Relationship with the Cour de cassation: the Conseil d'État is the supreme administrative court in France and its decisions bind the administrative courts in tax matters. The Cour de cassation, by contrast, governs civil and commercial matters, including some aspects of company law relevant to holding structures. Divergences between the two courts' approaches to questions of economic substance – while uncommon – cannot be excluded, particularly as anti-avoidance reasoning migrates into areas such as corporate liability and fiduciary duties.
Pending national implementation questions: the full practical scope of Nordcurrent Group's extension of the EU general anti-abuse rule to national participation exemptions remains subject to national implementation and further judicial elaboration. The extent to which French courts will treat domestic abus de droit as fully co-extensive with the EU standard, or will maintain a degree of independence, is a question that the case law has not yet conclusively resolved.
Strategic Recommendations for International Groups
Against this background, groups with French inbound dividend flows should consider a structured review along the following lines.
- Substance audit of intermediate holding companies: assess whether each intermediate entity has genuine economic substance – board composition, decision-making authority, employees, physical presence, and genuine treasury functions – that is capable of withstanding judicial scrutiny.
- Review of cash-pooling and dividend-flow documentation: identify whether dividend flows follow pre-determined timelines or are committed to onward transfer by agreement, as these features are strong indicators of conduit treatment.
- Mapping the beneficial owner: for each dividend flow, identify who the tax authority is likely to treat as the beneficial owner if the intermediate entity is disregarded, and assess the withholding-tax consequences under the applicable treaty or domestic rules.
- Document commercial purpose contemporaneously: for any restructuring, ensure that the business rationale is documented at the time of implementation, addressing both the objective and subjective elements of the anti-abuse analysis.
- Consider voluntary regularisation: where existing structures are identified as potentially vulnerable, voluntary disclosure or pre-emptive restructuring before a tax audit commences may reduce exposure to penalties and interest, though the appropriate approach will depend on the specific facts and the applicable procedural rules.
- Assess litigation risk realistically: if a challenge has already been raised – whether through an injonction de payer or a formal reassessment notice from the tax administration, to be enforced by a commissaire de justice – the litigation strategy should be developed with an understanding of the new case-law landscape established by Vélizy Rose and Hellier du Verneuil.
Ferraz & Whitmore advises international groups on the full range of French tax risk management and anti-avoidance issues arising from these decisions. For a confidential discussion of your group's exposure, please write to info@ferrazwhitmore.com or visit our contacts page. You may also find our dedicated overview of French tax disputes services a useful starting point.
Outlook
The trajectory of French case law on beneficial ownership and anti-abuse is now well established. Both the Conseil d'État and the CJEU have demonstrated consistent willingness to look through formal structures and to deny directive and treaty benefits where the intermediate entity lacks genuine economic substance or where the predominant purpose of the arrangement is tax-driven. The frequency with which these issues arise in French tax audits is likely to increase in the near term, as the administration incorporates the Vélizy Rose and Hellier du Verneuil decisions into its audit methodology.
For groups with holding structures that pre-date the Danish cases or that were designed to optimise formal compliance with the PSD and bilateral treaties without building substantive holding-company functions, the window for proactive review is narrowing. The decisions also have implications beyond France: as comparable principles are applied by courts across the EU, a structure that survives challenge in one jurisdiction may be vulnerable in another. Readers managing group structures with exposure in multiple jurisdictions may wish to consider our analysis of tax disputes in Greece as part of a wider cross-border review.
Further judicial developments are anticipated, particularly as lower administrative courts apply the Vélizy Rose framework to factual scenarios not addressed in the November 2024 decisions and as the implications of Nordcurrent Group (C-228/24) for purely domestic participation exemptions are worked out at member-state level.
Sources
- PwC Avocats, Withholding tax on dividends – Application of the European and treaty notion of beneficial owner, November 2024: pwcavocats.com
- Forvis Mazars, Abus de droit fiscal et régime des sociétés mères: forvismazars.com
- Loyens & Loeff, CJEU Rules on the Application of the GAAR under the PSD to National Participation Exemptions: loyensloeff.com
To discuss how these developments may affect your group's structures in France or across other jurisdictions, contact Ferraz & Whitmore at info@ferrazwhitmore.com or through our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.