Decision of the Paris Administrative Court, issued on 19 November 2025

A recent decision of the Paris Administrative Court, issued on 19 November 2025, sheds light on how cross-border corporate structures between France and Luxembourg are assessed for tax purposes.

The case involved a French investment vehicle (SPPICAV) that distributed dividends to its sole shareholder established in Luxembourg. A bank, acting as paying agent and depositary, applied the 5% withholding tax rate provided by the France–Luxembourg tax treaty.

Following a tax audit and administrative cooperation with the Luxembourg authorities, the French tax administration challenged the application of the reduced rate. The court confirmed that the Luxembourg entity was not the true economic beneficiary of the dividends. Under contractual arrangements including Tracking Preferred Equity Certificates (TPECs) it was required to transfer almost all of its income to another group entity, leaving it without genuine discretion over the funds. This prevented the company from benefiting from treaty protection as a beneficial owner.

The paying agent complied with its KYC obligations, but the court clarified that a bank’s responsibilities do not extend to identifying contractual upstream obligations or analysing the economic substance of intra-group flows. Determining the beneficiary and assessing treaty eligibility lies with the distributing entity and the taxpayer not with the paying agent.

The taxpayer also argued that the dividends ultimately flowed to U.S., Luxembourgish and Qatari investors via a fiscally transparent U.S. LLC, and therefore that different treaties should apply. The court rejected this argument, noting that no evidence was provided to establish any identifiable beneficial owner entitled to treaty protection under another convention.

The French administration applied the 30% domestic withholding tax rate, and the court upheld the 40% penalty for deliberate non-compliance, considering that the French entity had full knowledge of the economic flows and contractual mechanisms within the group.

The ruling is currently subject to the possibility of an appeal, which could clarify the scope of treaty access and the evidentiary burden placed on taxpayers in cross-border structures.

The full decision is available here.

https://lnkd.in/egvJaa6t