Payroll Tax and the Parent-Subsidiary Directive: The French Supreme Administrative Court Refers a Question to the CJEU
Published on :
15/09/2026
15
September
Sep
09
2026
Companies should not wait for the ruling to act
By a decision of 7 July 2026, the Conseil d’Etat (France’s supreme administrative court) referred a novel question to the Court of Justice of the European Union (CJEU): is the French taxe sur les salaires (a payroll tax levied on employers not fully subject to VAT), when its base is partly calculated by reference to intra-group dividends eligible for the parent-subsidiary regime, compatible with the Parent-Subsidiary Directive (2011/96/EU)? The case (BNP Paribas v. French tax authorities, CE, 9th and 10th combined chambers, 7 July 2026, No. 508049) opens a window for claims that affected companies have a clear interest in using before is closes.
How the tax works
The taxe sur les salaires (Article 231 fi the French General Tax Code) applies to employees who are not subject to VAT, or not subject to it on at least 90% of their turnover, chiefly banks, insurers and some holding companies. Its base is not total payroll but a fraction of it, set by a « taxable proportion »: revenue that did not carry a right to deduct VAT, divided by total revenue. For the purpose of that ratio, the tax authorities include dividends received by the company, including those qualifying for the parent-subsidiary regime (articles 145 and 216 of the Tax Code), which are otherwise almost entirely exempt from corporate income tax.
Two questions, one practical stake
The Conseil d’Etat found that existing EU cases did not settle the matter on its own and referred two questions to the CJEU. The first goes to principles: does the Directive’s neutrality objective preclude a member state, having opted for the exemption method, from basing a tax on payroll where dividends inflate that base indirectly, through both the numerator and denominator of a ratio, even though the tax is not formally assessed on the dividends themselves? The second, more technical, arises only if the first is answered affirmatively: how does this interact with the Directive’s safeguard clause, which allows states to disallow, up to a flat 5%, the deduction of costs related to the shareholding?
Tellingly, the Conseil d’Etat chose to refer the question rather tantamount adopt, as the lower administrative appellate court had done, a restrictive reading under which the payroll tax simply falls outside the Directive’s scope. The choice is itself a signal that the point is genuinely open.
Who is affected
The issue chiefly concerns companies that are structurally partial VAT payers and receive dividends from EU subsidiaries eligible for the parent-subsidiary regime: banks, insurers, mixed holding companies, and certain real estate groups. For these companies, receiving dividends from European subsidiaries can, mechanically, increase their payroll tax bill through the taxable proportion ratio, which is precisely the anomaly the Conseil d’Etat has asked the CJEU to examine.
Groups with active intra-EU dividend upstreaming, notably under tax consolidation or centralised cash pooling are particularly exposed.
What to do now
A CJUE ruling is not expected for twelve to eighteen months, and French domestic claim deadlines keep running regardless. Companies should therefore act promptly: map their exposure year by year (payroll tax paid, share of parent-subsidiary dividends included in the ratio, potential reimbursement); file protective claims without delay, since under Article R.196-1 of the Book of Tax Procedures, claims must generally be filed by 31 December of the second year following payment, a deadline the BNP Paribas litigation does not suspend; request a stay of proceedings before the tax courts once a claim becomes contentious, to preserve the filing date while awaiting the CJEU’s answer; and document the underlying calculation carefully (source and amount of dividends, distributing subsidiaries and their state of residence, eligibility for the parent-subsidiary regime, amounts actually included in the ratio), since this reconstruction is often substantial for groups with numerous holdings.
Conclusion
The 7 July 2026 decision opens a period of uncertainty likely to span several financial years. The uncertainty on the merits should not translate into procedural inaction: companies concerned have every interest in securing their rights now, through protective claims covering all open years, rather than waiting for a clarification that may not arrive for months or, if the litigation continues before the lower courts after the CJUE’s answer, years.
Our firm is following this matter closely and remains available to help companies assess their exposure and take the necessary steps.
History
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Payroll Tax and the Parent-Subsidiary Directive: The French Supreme Administrative Court Refers a Question to the CJEU
Published on : 15/09/2026 15 September Sep 09 2026NewsCompanies should not wait for the ruling to act By a decision of 7 July 2026, the Conseil d’Etat (France’s supreme administrative court) referred a novel question to the Cour...
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Debt waivers with a “better fortune” clawback clause: France’s top administrative court clarifies the tax treatment of the resulting income for the lending company
Published on : 29/07/2026 29 July Jul 07 2026NewsCommentary on Conseil d'État (joint 9th and 10th chambers), 7 July 2026, No. 506015, Sté Sparflex A “better fortune” clawback clause is, by design, meant to revive the waived...