Tax Treaty Case Law around the Globe 2022

S. 157Chapter 15: “Butoir” Rule and Tax Credits on Inbound Dividends

Marilyne Sadowsky

15.1. Introduction

French tax treaties following the OECD Model provide for shared taxation of dividends between the source state and the state of residence. In this case, a withholding tax is applied on the gross amount of outbound dividends leaving the source state. Inbound dividends are taken into account in the taxable base of the person receiving them in the state of residence, under the conditions provided for corporate income tax or personal income tax. To eliminate double taxation, article 23B of the OECD Model provides for a tax credit that can be applied in the recipient’s state – in this case France – against the French tax that includes this income – in this case corporate income tax. The tax credit is, however, limited to the amount of withholding tax levied by the source state on the dividends, up to the amount of the French tax corresponding to such income. In France, these treaty provisions must be applied in conjunction with a rule contained in article 220 1. of the French Tax Code (FTC), which makes it possible to calculate the “butoir”, i.e. the maximum amount of the tax credit that c...