Unlike the aforementioned QPC rulings, the Conseil Constitutionnel did not find the provisions of the FTC relating to the taxation of dividends received by individual shareholders fully compliant with the French Constitution.
Under these rules, in force until 2012, French resident taxpayers who had elected to submit part of their dividends to the 21 percent final withholding tax provided for under Article 117 quater of the FTC (so-called prélèvement forfaitaire libératoire) could no longer benefit, in respect of other dividends received by them, from (i) the fixed annual allowance and (ii) the 40 percent tax basis relief.
The Conseil Constitutionnel noted that the prohibition of the combination of these regimes was intended to avoid any kind of tax arbitrage from taxpayers who would only elect for the 21 percent withholding tax for the amount of dividends received not covered by the fixed annual allowance. As such, this prohibition was found compliant with the French Constitution since justified by the objective of combating tax optimization schemes.
However, the Conseil Constitutionnel issued a reserve of interpretation regarding dividends received during 2012, year during which taxpayers could no longer benefit from the fixed annual allowance. Since taxpayers could no longer proceed to any kind of tax optimization involving the combination of these regimes during 2012, the Conseil Constitutionnel ruled that the 40 percent tax basis relief should also benefit to French taxpayers who had elected to submit part of their dividends to the 21 percent withholding tax.
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