Chilean subsidiary dividends: Significant tax relief now possible
A recent decision by the French Conseil d’État (February 18, 2025) presents a major opportunity for French companies receiving dividends from their subsidiaries established in Chile. Due to this legal development, the tax burden on these dividends is significantly reduced.
What is it about?
Until now, when a French company received dividends from a Chilean subsidiary in which it held at least a 95% stake, those dividends benefited from the parent-subsidiary regime provided for under Article 145 of the French General Tax Code.
In practice, this meant an exemption from corporate income tax, subject to the reintegration of a 5% portion of expenses and charges (“quote-part de frais et charges” or QPFC) into the taxable income. In other words, 5% of the dividends remained taxable, leading to an effective taxation rate of 1.25% (5% x 25%).
With the Conseil d’État’s decision, this portion is reduced to 1%, effectively cutting the taxation on these dividends by a factor of five, bringing it down to 0.25% (1% x 25%).
What is the legal basis for this decision?
The French Conseil d’État based its decision on Article 22 of the France-Chile tax treaty, which stipulates that dividends distributed by a Chilean company to a French company must receive tax treatment equivalent to that applied to intra-French or intra-European dividends.
This approach aligns with the Steria case law (CJEU, September 2, 2015, Case C-386/14), which led to the neutralization of the quote-part de frais et charges (QPFC) for intra-European dividends to ensure equal treatment between French and European subsidiaries.
As a reminder, the Steria ruling condemned the difference in treatment between a French subsidiary, which was eligible for the tax consolidation regime (intégration fiscale), and a European subsidiary, which was not. The present decision extends the scope of this solution beyond the European framework, relying on the specific wording of Article 22 of the tax treaty between France and Chile.
What opportunities does this create for companies?
This decision creates a litigation opportunity for companies that have been taxed on dividends from Chilean subsidiaries in recent years. These companies should consider filing claims with the tax authorities to obtain a refund of the excess tax paid.
Key steps to consider:
- Analyze past dividend flows: Identify any dividends distributed by Chilean subsidiaries in which the company holds more than 95%.
- Assess the financial impact: Estimate the potential tax reduction that could be recovered.
- File a tax claim: Request a refund of the excess corporate income tax paid, relying on the Conseil d’État’s decision.
- Secure future compliance: Adjust the accounting treatment of future QPFC amounts to benefit from this tax reduction.
Why take action without delay?
Such claims are subject to a two-year statute of limitations. It is therefore crucial to act without delay to recover unduly paid amounts for still open fiscal years.
Conclusion
The Conseil d’État’s decision of February 18, 2025, represents a major breakthrough for French groups with subsidiaries in Chile. By drastically reducing the taxation of dividends, it paves the way for potential tax refunds and improved tax burden management.
Our teams are at your disposal to assist you in analyzing your situation and implementing the necessary procedures.
