France: Withholding tax on dividends paid to EEA life insurance companies; possible refund opportunity

France: Withholding tax on dividends paid

France must amend its withholding tax rules on dividends paid to life insurance companies located in other European Economic Area (EEA) Member States, according to the European Commission.


The EC has found that the French rules relating to withholding taxes on dividends paid to non-French life assurance companies are contrary to the free movement of capital (a position that is viewed as being consistent with various EU and French court decisions).

KPMG observation

Life insurance companies that have been subject to French withholding tax may have grounds to claim a refund from the French tax authorities. Companies need to review whether and to what extent they have been subject to this withholding tax and, in order to comply with statutory time limits, consider whether and when to file a claim for refund pending the outcome of the EC’s infringement proceedings.

EC letter of formal notice

The European Commission in February 2021 sent a letter of formal notice to France—the first stage of the infringement procedure—regarding the withholding tax applied to dividends paid by French companies to life insurance companies established in another Member State of the EEA and used to remunerate unit-linked policies (“UC”).

The rationale behind the formal notice was that the French rules constituted a restriction on the free movement of capital.

The EC in its letter of formal notice specifically targeted unit-linked contracts issued by life insurance companies established in another EEA Member State. Unlike euro-denominated contracts, UC policies are backed by underlying assets. These products allow policyholders, through the life insurance or pension contract, to invest in diversified securities (listed shares, unlisted shares, bonds, real estate fund units, FCPR units, etc.). In this context, the dividends received by the life insurer are intended to be fully allocated to the mathematical provision of the policy representing the policyholder's rights.

The EC considered the French rules related to withholding taxes on dividends paid to infringe on the free movement of capital by treating non-resident insurance companies differently from insurance companies that are French tax residents.

  • French-source dividends received by a French life insurance company are not subject to withholding tax. The taxable income of life insurance companies is determined after the tax deduction of allocations to mathematical reserves. The dividends thus allocated to the mathematical provisions are de facto not taxed in the life insurer's hands.
  • Conversely, French-source dividends received by a non-resident life insurance company are subject to a final French withholding tax which may be reduced on the basis of an income tax treaty, if applicable. This withholding tax is computed on the gross amount of the distributed income. As a result, the policyholder is penalized, as the yield on the unit-linked investment is automatically reduced by this withholding tax.

France has two months to respond to the EC's arguments. Otherwise, the EC may decide to send a reasoned opinion—the last step before referring the matter to the Court of Justice of the European Union.

Read an April 2021 report [PDF 182 KB] prepared by the KPMG member firm in France

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