After a chaotic process marked by the no-confidence vote of the Government formed by the French Prime Minister Barnier in December 2024 and the absence of a budget vote before the end of 2024, the Finance Bill was finally adopted on 6 February 2025, and mostly validated by the French Constitutional Council on 13 February. Following up our previous post, this article provides an updated overview of the key tax measures relevant for businesses.

Cross-border distributions: a new withholding tax era? 

The Bill introduces two notable measures regarding cross-border distributions, which are probably its most important international tax measures.

• A new procedure which will make claiming treaty benefits more burdensome
• A beneficial ownership condition

New procedure to claim treaty benefits

A new procedure has been introduced – applicable as from 1 January 2026 – to benefit from a double tax treaty that either exempts distributions from withholding tax (WHT) or does not provide for a WHT.

Since the 1990s, foreign taxpayers could generally benefit upfront from these exemptions (simplified procedure), subject to certain documentation requirements (tax residence certificate). 

This is going to change. 

As from 2026, this simplified procedure will no longer be applicable, and the person making the payment  will have to levy the French WHT at the standard domestic rate, and the beneficiary will be able to claim the benefit of the treaty (and obtain the corresponding refund) if the beneficiary – or the person making the payment - demonstrates to the French Tax Authorities that the conditions set forth by the treaty are met. This provision is quite broad and seems therefore to apply to any distribution or deemed distribution (even though it has been inserted in the provision specifically dealing with dividend arbitrage practices, whose scope is also broaden by the Bill). 

This two-step procedure would notably impact non-EU parent companies (including parent companies resident in the US, Switzerland, the UK and some Middle Eastern countries). 

We would expect that this procedure will not apply when the exemption does not rely on a treaty, notably, for EU parent companies benefitting from the EU Directive, and for eligible UCITS. This will, of course, have to be officially confirmed by the French tax authorities which have been, since the vote of the Bill, approached by professional organizations to confirm to what extent this measure could be amended and narrowed before 2026. 

This step backwards can certainly be explained by the growing attention given by the French tax authorities to the eligibility of foreign taxpayers to treaty benefits, which has come with the increasing use, in this context, of anti-abuse provisions and of the beneficial ownership concept.  

Beneficial ownership condition

A beneficial ownership condition has been expressly added into the French domestic legislation that provides for the French WHT on cross-border distributions (art. 119 bis, 2 of the FTC). 

The change aims to neutralize a decision by the French Administrative Supreme Court (Conseil d’Etat) that the relevant French law did not contain any explicit or implicit beneficial ownership condition (CE plén., 8 December 2023, no 472587). 

It specifically targets situations where the beneficial owner of a dividend distribution paid to a French company is not domiciled or established in France: in such cases, the French Tax Authorities will be able – subject to applicable double tax treaties – to levy French WHT, with no obligation to use the abuse of law procedure. 

Other measures 

Additional tax charge on large companies 

A new contribution will finally apply only in respect of the first financial year (FY) closed as from 31 December 2025. It applies to companies with a French turnover of at least €1 billion in respect of the FY for which the contribution is due or the previous FY (assessed on a 12-month basis and, where applicable, at the level of the French tax consolidated group). 

Tax base: The contribution is based on the average of: the corporate income tax (CIT) due in respect of the FY during which the contribution is due, and the CIT due in respect of the previous FY, before any tax credits/reductions, or tax receivables of any nature. 

The total effective tax rate would generally be 30.98% or 36.13%, depending on the turnover during the FY of assessment and the previous FY. 

• For companies with a turnover of €1 billion or more but less than €3 billion in respect of the FY during which the contribution is due and in respect of the previous FY: 20.6% (total effective tax rate of 30.98%, with the 3.3% surcharge). 
• For companies with a turnover of €3 billion or more in respect of the FY during which the contribution is due or in respect of the previous FY: 41.2% (total effective tax rate of 36.13%, with the 3.3% surcharge)

In both cases, specific provisions apply to mitigate the threshold effect for companies whose turnover exceeds one of the given thresholds by less than €100 million. 

An advanced payment is due at the same time as the last CIT instalment for the current FY (i.e., December 2025 for FYs closed on 31 December 2025), equal to 98% of the estimated amount of the contribution, with a regularization in N+1. This contribution cannot be offset by any tax credits, reductions, or tax receivables of any nature.

Tax at 8% on capital reductions following share repurchases

The tax applies to capital reductions carried out from 1 March 2025 (but with a related look-back measure to 1 March 2024). 

It applies to capital reductions via cancellation of shares resulting from share buybacks performed by companies – listed or not – having their head office (including the place of effective management) in France and whose sales exceeded €1 billion during the previous FY (assessed, where applicable, at the level of the consolidated or combined financial statements established pursuant to French rules, which raises the question of the regime applicable to French subsidiaries of foreign groups). 

Under certain conditions, the tax does not apply notably to capital reductions compensating capital increases realized in the context of employee incentive plans (such as stock-options or free shares plans) or to facilitate mergers or demergers, and to capital reductions realized by certain UCITS and certain venture capital companies.

The tax rate is 8% of the sum of: the amount of the capital reduction itself and a fraction of the amounts that qualify as share premium for accounting purposes (primes liées au capital). The amount of these premiums is retained in the proportion existing  between the amount of the capital reduction and the amount of the share capital before this reduction. 

Unlike the U.S. 1% excise tax on stock repurchases (also covered on this blog), this tax therefore does not apply to the fair market value of the stock repurchased (which certainly explains why its nominal rate is higher), no de minimis threshold applies, and the base is not be reduced by capital increases realized during the same period. 

Capital reduction tax: look-back to 1 March 2024

An ad hoc one-off tax, not codified, is instituted for capital reductions carried out from 1 March 2024 to 28 February 2025. 

This tax is based on a similar model to the new 8% charge applicable from 1 March 2025. But there are some differences, for example that capital reductions are taken into account for an amount net of the capital increases realized during this period. 

Also worth mentioning:

• Pillar Two: several new provisions, or amendments to already existing provisions, notably, to take into account the publication of the Administrative Guidance by the OECD in 2023, which were not incorporated into the Finance Act for 2024 due to timing reasons. 
• Adjustment to the French tax neutrality regime for partial divisions and certain mergers without the issuance of new shares: following the transposition of the EU Directive 2019/2121, which introduced in the French commercial code the partial division (i.e., contributions of assets followed by the direct attribution of the shares issued upon the contribution to the shareholders of the contributing entity) and a new form of merger without the issuance of new shares (i.e., in the case where the merged and merging entities are held in the same proportions by the same shareholders), the French tax neutrality regime is extended mutatis mutandis to these reorganizations.
• French financial transaction tax: the rate is increased from 0.3% to 0.4%.