EU: CJEU referral on compatibility of payroll tax with parent-subsidiary directive (France)

The EU published a request for a preliminary ruling in case C‑779/26 before the Court of Justice of the European Union (CJEU)—filed by the French Conseil d’État (Supreme Administrative Court) on July 13, 2026—concerning whether the French payroll tax (taxe sur les salaires) is compatible with the EU Parent-Subsidiary Directive (PSD).

Summary

Under French law, employers that are not fully subject to VAT are liable to payroll tax on a proportion of their remuneration expenses. For businesses carrying out both taxable and exempt activities, including financial institutions, that proportion is determined by a ratio comparing exempt turnover to total turnover. Dividends received by a parent company, including dividends covered by the French parent-subsidiary regime, are included in the calculation of that ratio and may therefore affect the proportion of remuneration subject to French payroll tax.

A French banking group sought a partial refund of payroll tax paid between 2014 and 2019, arguing that the inclusion of dividends received from qualifying EU subsidiaries in the payroll tax calculation infringes Article 4 of the PSD. The Supreme Administrative Court noted that recent CJEU case law has interpreted Article 4 of the PSD as prohibiting not only the direct taxation of exempt dividends, but also certain mechanisms that increase the tax burden borne by parent companies receiving such dividends. However, unlike in cases previously considered by the CJEU, the French payroll tax is levied on remuneration expenses rather than on profits or dividend income. The court thus seeks clarification as to whether Article 4 also applies when exempt dividends affect the calculation of the taxable base of another tax.

Read a September 2026 report prepared by KPMG’s EU Tax Centre