France - Loss-making companies may not carry forward unused foreign tax credits

France’s highest administrative court, the Conseil d’État, issued a decision on 8 March 2023, concluding that unused foreign tax credits may not be carried over to future years.

The taxpayer in the case—the head of a French group of companies—received foreign-source dividends (and other income) between 2008 and 2011. Tax credits were attached to the dividends corresponding to the tax deducted at source in the foreign jurisdictions based on the provisions in applicable tax treaties. The taxpayer had posted losses in France during these years and, therefore, was unable to use the tax credits associated with the foreign-source income. Once the company became profitable, it wanted to use the foreign tax credits to offset against its current French corporation tax liability.

Most of France’s tax treaties provide that companies that generate income abroad will be granted a tax credit equal to the foreign tax paid on the income, which can then be offset against their French corporation tax.

The Conseil d’État ruled that unused foreign tax credits could not be carried over to subsequent years, which comports with previous court decisions in France. For example, the Conseil d’État ruled in 1991 that foreign tax credits could only be used in the year in which the associated income was generated. And in 2017, the Constitutional Court held that the French legal provisions preventing companies from carrying over foreign tax credits to subsequent years applied “to all companies, regardless of their financial results.” In a decision issued in 2021, the Montreuil Administrative Court upheld this case law, ruling that a loss-making company could not carry over unused foreign tax credits to subsequent profitable years. It would thus appear that case law on the issue of carrying unused foreign tax credits forward is well-established.

On a related point, the Conseil d’État confirmed in its decision that companies cannot claim a refund of any unused tax credits.

Sasha Boksenbaum
BDO in France

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