Life insurance companies entitled to refund of French dividend withholding tax

JUNE 15, 2021, 2021 | TAX NEWS

On May 11th, 2021, the French Supreme Court (Conseil d’État) ruled that UBS Asset Management Life Ltd (a UK life insurance company) is entitled to a refund of French dividend withholding tax if indeed, as argued by UBS, the dividend income from which such tax is levied increases the insurer’s commitments vis-à-vis of the insured, and consequently the amount of technical provisions.

During 2007 and 2008, the British life insurance company UBS Asset Management Life Ltd (“UBS”) received dividends distributed by French companies which were subject to French withholding tax, the rate of which was limited to 15% in application of article 9 of the Franco-British tax treaty. UBS requested a refund of the withholdings, on the grounds that these deductions had been applied in disregard of the freedom of movement of capital (article 63 EU Treaty), because UBS was required by law, concomitantly with the collection of these dividends, to constitute technical provisions which, if UBS had been established in France, would have canceled the income tax burden incurred as a result of this income and have resulted in a refund of the withholding tax. The French tax administration rejected UBS’ complaint. Subsequently the Montreuil administrative court rejected the request on October 3rd, 2017. And on October 1st, 2019 the Administrative Court of Appeal of Versailles rejected the appeal. 

The Supreme Court has now annulled the decision from the Administrative Court of appeal of Versailles as the latter has failed to recognize that the levy of dividend withholding tax is a restriction on the free movement of capital that is prohibited under article 63 of the EU Treaty (TFEU). In its decision, the Supreme Court refers to, among others, the Commission vs. Finland decision and the more recent College Pension Plan decision, both from the European Court of Justice. The case is referred back to the Administrative Court of appeal of Versailles for further investigation whether, based on the facts and as asserted by UBS, the dividends came from assets held to meet regulated commitments and the collection of the dividends increased these commitments.

This decision is important not only for UK life insurance companies but for life insurance companies where ever they are established, as the free movement of capital provision in the EU treaty on which it is based has “third country effect”, meaning it can be invoked also by claimants established outside of the EU.

This decision can be found by clicking here.