Tax claim opportunity: payroll tax and dividends

Article 4 of the Mother-Daughter Directive provides that when a State opts for the exemption of dividends, as is the case for France, it may provide that the expenses related to the participations resulting from the distribution of dividends from the European subsidiary are not deductible. The text also provides for the possibility for States to fix the amount of these charges on a fixed basis without this fixed amount not exceeding 5% of the subsidiary's distributed profits.

The Paris Administrative Court of Appeal recently had to rule on the taxes that should be taken into account in order to determine how this 5% amount should be calculated.

The applicant, a banking institution, claimed in particular that the inclusion of dividends in the CVAE database, due to the chart of accounts of credit institutions, did not comply with the parent-subsidiary directive because this led to the taxation of dividends in excess of the 5% authorized by the directive.

Since the Administrative Court of Appeal considered that there was a serious difficulty in interpreting European Union law, it referred a preliminary question to the Court of Justice.

The question also arises in terms of payroll tax, since these dividends are likely to be included in the tax liability relationship, also leading to taxation that could go beyond the 5% provided for in the directive.

The Court of Justice of the European Union ruled in this regard last month (CJEU, 1 August 2025, C‑92/24 to C‑94/24), that this 5% limit does not only apply to corporate tax but also to other taxes.

For its part, the Paris Administrative Court of Appeal had ruled, before this judgment, that there were no difficulties in taking into account dividends in the payroll tax liability report (CAA Paris, July 9, 2025, No. 24PA00252).

However, this consideration indirectly leads to the taxation of dividends above the 5% threshold. The judgment of the Court of Justice thus opens up prospects for complaints.

Who is concerned?

Payroll tax is a French specificity that applies to employers established in France who are not subject to VAT on more than 10% of their turnover.

According to the case law of the Council of State (CE, March 31, 2023, Minister of Economy, Finance and Recovery c/ SA Legris Industries, no. 460838), a company is liable for this tax in two cases:

• when all of its turnover is not subject to VAT during the year in which the remuneration was paid (year N);
• or, alternatively, when more than 10% (11% in reality) of the turnover of the previous year (year N-1) is not subject to VAT and does not allow this tax to be deducted.

For the companies concerned, the tax is calculated on the remuneration paid (CSG base), according to a progressive scale. The amount due is then multiplied by a liability ratio, calculated, with some exceptions, over the year N-1. This ratio is decisive in order to determine the amount of tax.

The coverage ratio is calculated as follows:

(Receipts and other products that do not qualify for VAT deduction)/(Receipts and other products, including those outside the scope of VAT such as dividends or non-exceptional subsidies).

Dividends play an essential role here. Although they are outside the scope of VAT, they are integrated into the denominator of the taxation relationship, without giving rise to the right to deduct. Their weight in overall turnover can therefore make a company fall into the field of payroll tax, or significantly increase its tax liability ratio, thus increasing the amount of tax.

In this context, the following are therefore particularly exposed to this tax:

• holdings, due to the receipt of interest or dividends;

• players in the financial, insurance or banking sectors (banks, fintechs, insurers, brokers, crypto operators, etc.);

• groups operating in the medical sector or in the vocational training sector exempt from VAT;

• certain companies benefiting from significant non-exceptional grants (startups or companies financed by third parties via subsidies outside the scope of VAT);

• businesses in the gambling sector (casinos, gaming operators, etc.).

Conversely, some operators benefit from a legal exemption, such as public authorities, operators exempt from VAT or universities are not concerned.

Strategies for allocating employees to specific activities can help mitigate the impact of the tax (sectorization as provided for by law and doctrine).

However, these mechanisms remain partial: in fact, a company whose significant part of its activity (in particular the receipt of dividends) escapes VAT will not be able to completely avoid being subject to payroll tax.

In practice, the potential exclusion of dividends from the calculation of the liability ratio would be a great opportunity to limit the amount of payroll tax, or even allow certain companies to completely leave the scope of this tax.

Indeed, such an exclusion — if it is validated — would have the mechanical effect of reducing the denominator of the report, and therefore of lowering the rate of liability for payroll tax.

What to do?

Without further ado, it is therefore necessary to determine the numerical impacts that the favourable decision of the CJEU could have on your company, as well as the consequences that would result in terms of payroll tax.

It is indeed important for the companies concerned to safeguard their rights by filing a complaint with the administration in order to request the reimbursement of payroll tax.

In order to be able to best assist our clients, we are working in coordination on this subject with the firm Mispelon Lawyers dedicated to tax control and litigation.

We thus offer cross-technical expertise in payroll tax and tax litigation in order to increase the chances of success for our clients.

Therefore, do not hesitate to contact us to immediately conduct an audit of your situation and file a complaint with the administration in order to preserve your rights.

What is the deadline to claim?

In principle, the deadline for filing a claim for payroll tax expires on 31 December of the second year following its payment (LPF, art. R*196-1).

The Council of State specified that periodic payments made during a year are only installments. Thus, the payroll tax due on remuneration paid during the year 2022 is definitively liquidated in the year 2023 and it is possible to file a claim, for this year, until December 31, 2025.

Depending on the situation, it is also possible to request the application of special claim deadlines allowing claims from previous years to be filed.