Claiming a Tax Refund of the Exceptional Contribution on High Incomes ("CEHR") on French Dividends for Non-Residents: Opportunities and Procedures

The Administrative Court of Montreuil recently issued an important decision regarding the application of the Contribution exceptionnelle sur les hauts revenus (CEHR) on French-sourced dividends paid to an Italian resident (TA Montreuil 19-9-2024 n° 2215513). According to this decision, France cannot apply the CEHR to these dividends under the provisions of Article 10 of the France-Italy tax treaty of October 5, 1989. Since 2018, the French withholding tax rate on dividends has been reduced to 12.8%. However, when these dividends are paid to a non-resident, the tax authorities apply the Exceptional Contribution on High Incomes (CEHR). The CEHR is considered a future tax similar to income tax, falling within the scope of the France-Italy tax treaty of October 5, 1989, under Article 2 of this text. This contribution is calculated based on the taxable income of the household for the relevant tax year, a concept that takes into account all the resources effectively received by a household during a calendar year.

The CEHR is determined according to a progressive rate scale with two brackets, after applying a zero rate to the first bracket. The applicable rates are as follows:

• For single, widowed, separated, or divorced taxpayers:
  • Taxable income up to €250,000: rate of 0%
  • Taxable income between €250,001 and €500,000: rate of 3%
  • Taxable income above €500,000: rate of 4%
• For married or civil partnership (PACS) taxpayers, subject to joint taxation:
  • Taxable income up to €500,000: rate of 0%
  • Taxable income between €500,001 and €1,000,000: rate of 3%
  • Taxable income above €1,000,000: rate of 4%

In cases where the shareholder resides in a country that has entered into a tax treaty with France limiting the right to tax to 15%, the amount of the CEHR is adjusted so that the total taxation of dividends in France does not exceed this 15% threshold.

Recently, a taxpayer residing in Italy contested the application of the CEHR based on Article 10 of the France-Italy tax treaty, which stipulates that France can only tax French-sourced dividends up to 15% and exclusively through withholding at source. The CEHR, on the other hand, is recovered through assessment, i.e., via a payment notice.

The Administrative Court of Montreuil ruled in favor of this taxpayer with a decision that seems difficult to challenge in higher courts, as it is based on reasoning consistent with a precedent concerning insurance products paid to a Belgian resident (CE, July 10, 2019, n° 425148).

This solution should also be applicable to other tax treaties that explicitly state that the taxation of dividends must be carried out through withholding at source in the residence state of the company distributing the dividends. As a result, this decision could have broader implications for residents of other countries benefiting from similar treaties with France.

To file a tax claim in France to obtain a refund of the CEHR, it is necessary to submit a formal request to the French tax authorities, clearly specifying the amounts in dispute and the legal grounds for the claim. The request must be filed no later than the end of the second year following the year in which the tax assessment was issued or the tax was paid.