EU: CJEU referral on compatibility with EU law of French tax on share buybacks (France)
Whether tax is compatible with the Capital Duty Directive
The French Supreme Administrative Court (Conseil d'État) on July 6, 2026, referred several questions to the Court of Justice of the European Union (CJEU) (joined cases 508944 and 508946) concerning the compatibility with EU law of the French tax on capital reductions resulting from the repurchase and cancellation of a company's own shares.
Summary
Article 235 ter XB of the French Tax Code (introduced by Article 95 of the 2025 Finance Act) imposes an 8% tax on capital reductions carried out through share buyback transactions followed by the cancellation of the repurchased shares on large companies with revenue exceeding €1 billion. The tax base is determined by reference to the amount of capital reduction and a proportional share of share premium reserves. A one-off transitional tax was also introduced for transactions carried out between March 1, 2024, and February 28, 2025.
The plaintiffs challenged the administrative guidance issued by the French tax authorities regarding the application of these taxes. They further argued that the measure is incompatible with Council Directive 2008/7/EC (the “Capital Duty Directive”) concerning indirect taxes on the raising of capital because it applies to amounts corresponding to capital contributions and share premium previously contributed by shareholders and therefore constitutes prohibited indirect tax on capital transactions.
The Supreme Administrative Court rejected several of the plaintiffs' arguments, including those based on the EU Parent-Subsidiary Directive (PSD), alleged discrimination under the European Convention on Human Rights, and principles of legal certainty and legitimate expectations. However, it found that serious uncertainty remains regarding the interpretation of Article 5 of the Capital Duty Directive, which generally prohibits member states from levying indirect taxes on certain capital-raising and capital restructuring transactions. The court therefore referred the following questions to the CJEU:
- Whether the French buyback taxes constitute indirect taxes within the meaning of the Capital Duty Directive?
- If so, whether Article 5(1)(a) of the Directive precludes those taxes on the basis that they effectively apply to amounts representing capital contributions and share premium previously contributed by shareholders?
- Whether Article 5(1)(d) of the Directive precludes those taxes where the share buyback and subsequent capital reduction result in amendments to the company's constitutional documents?
Read a July 2026 report prepared by KPMG’s EU Tax Centre