Share of costs and charges (QPFC) and Swiss dividends: a strictly European case law
Since the highly anticipated ruling by the Council of State on May 7, 2025 (Sté Axa, no. 489957), the tax framework applicable to the share of expenses and charges (QPFC) for foreign dividends has become clearer. This decision confirms the exclusively intra-European scope of the neutralization of the QPFC, following the case law of Steria. For groups holding subsidiaries outside the European Union, such as in Switzerland, the prospects for tax optimization are limited.
QPFC, tax integration, and Steria case law: a brief reminder
Article 223 B of the General Tax Code (CGI) requires parent companies subject to tax integration to reintegrate a flat share of expenses and charges equivalent to 1% of the dividends received from their subsidiaries. This mechanism reflects the idea that holding shares incurs expenses that are not directly identifiable.
In 2015, the CJEU opened a breach in this regime with the Groupe Steria ruling (case C-386/14), deeming the application of the QPFC to non-integrated European subsidiaries discriminatory, even though they could have been integrated if they were established in France. In response, French tax law evolved to neutralize the QPFC under certain conditions, but only for entities within the European Union.
The Axa case: the refusal to extend neutralization to Switzerland
In its ruling of May 7, 2025, the Council of State examined a request from Axa, which aimed to extend the neutralization of the QPFC to dividends distributed by a Swiss subsidiary, wholly owned. The company notably invoked:
- Article 63 of the TFEU on the free movement of capital;
- Article 14 of the ECHR concerning equal treatment.
It argued that the restriction based on geographical location constituted unjustified discrimination, in light of European principles applicable to third countries as well.
However, the Council of State definitively dismissed this argument, confirming the strictly European scope of the neutralization stemming from the Steria case law.
Why neutralization remains confined to the European Union
Several legal grounds explain this rejection:
A justified difference in treatment
The Council of State deemed the distinction made between European and non-European subsidiaries legitimate. This differentiation pursues a constant objective of maintaining the coherence of the harmonized tax framework within the Union and respects the proportionality requirements set by the ECHR.
The freedom of establishment, a pillar of the Steria reasoning, inapplicable to third countries
The neutralization of the QPFC in Steria is based on the freedom of establishment, a principle reserved for intra-EU relations. However, in the case of exclusive ownership of a subsidiary (as here between Axa and its Swiss company), the CJEU considers that the free movement of capital cannot be invoked in place of the freedom of establishment, which is inapplicable outside the European Union.
Absence of specific conventional or legislative basis
Neither domestic law nor the Franco-Swiss tax treaty provides for the neutralization of the QPFC for Swiss dividends. The Council of State also rejects the invocation of the 1989 insurance agreement between Switzerland and the EEC, which does not address the tax treatment of dividends.
Consequences for international groups
The ruling of May 7, 2025 (Sté Axa) draws a clear line: dividends from third countries, such as Switzerland, remain subject to the share of expenses and charges of 1%, unless a specific contrary provision exists.
Favoring structuring within the Union
To benefit from the neutralization of the QPFC, groups must prioritize an intra-EU establishment of their subsidiaries. The strategic location of holdings becomes crucial for the tax optimization of dividend flows.
Examining tax treaties on a case-by-case basis
Some bilateral treaties may offer levers, particularly regarding tax credits or reduced withholding tax. For example, the France-Chile treaty recently became the subject of favorable litigation (Sté L. SA, CAA Paris, Nov. 10, 2023). A personalized analysis is necessary for each establishment outside the EU.
Case law in line with the Constitution
The decision continues the QPC Life Sciences Holdings (no. 2018-699 QPC), validating the constitutionality of the QPFC. The mechanism is stable and cannot be circumvented based on European law outside the Union.
Conclusion: the Axa ruling of 2025 definitively delineates the taxation of Swiss dividends
With its decision of May 7, 2025, the Council of State puts an end to hopes of extra-European transposition of the Steria case law. Dividends from third countries, such as Switzerland, will continue to bear a QPFC of 1%, unless a derogatory text is issued.
For international groups, this decision imposes a new rigor in structuring their holdings. Cross-border tax optimization now requires a nuanced approach, respectful of the limits set by European and national law.
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