French Tax Integration Scheme is incompatible with EU Law

The Court of Justice of the European Union has decided that the French tax integration rules are incompatible with the freedom of establishment. These rules allow a full dividend received deduction for dividends received from a French company in a tax-integrated group but denies a full deduction for distributions made by foreign subsidiaries to their French parent company.

In its decision of 11 May 2023 in the joined cases France v. Manitou BF SA (C‑407/22) and France v. Bricolage Investissement France SA (C‑408/22), the European Court of Justice interpreted article 49 of the Treaty on the Functioning of the European Union to determine that cross-border implications of France's tax-integrated group regime are compatible with EU law.


The case relates to disputes relating to two companies that are not members of a tax-integrated group under French law. Manitou BF SA and Bricolage Investissement France SA received dividend distributions from their foreign subsidiaries. The companies deducted the amount of the distributions from their income, apart from a fixed 5 percent rate for costs and expenses in accordance with the French tax rules implementing the EU Parent Subsidiary Directive 2011/96/EU.

However, the decision notes that the full dividend is deductible if the distributions are made within a tax-integrated group, and a company can only opt into one of those groups if it is subject to French taxation.

Both companies attempted to deduct the full amount of distributions received from their foreign subsidiaries and had their deductions rejected by the French tax authorities. They appealed and, in fine, the Conseil d’Etat (Manitou, Bricolage Investissement) referred the case to the European Court of Justice for a preliminary ruling.

The decision

Article 49 prohibits member states from restricting the freedom of establishment by providing a more favourable treatment to a resident of one member state than a resident of another.

The Court found that Article 49 precludes France from establishing rules that provide preferential treatment to domestic companies that are members of a tax-integrated group by fully exempting them from corporate income tax. Although both companies could have opted into the scheme because of “capital links” to French companies, they could not have freely created a group because their subsidiaries were established in other member states. On the contrary, French parent companies with subsidiaries in France may freely opt to participate in the scheme.

EU law permits a difference in treatment if the circumstances are not objectively comparable or if the difference is justified by a public interest exception. However, the Court concluded that the situations of a French parent company that may opt for a tax integration scheme and a company that cannot do so are objectively comparable. The public interest exception was deemed irrelevant because it was not argued by the French government.


This decision would have no effect in Belgium. Since 2018 Belgian companies can deduct the full dividend received from Belgian companies and from overseas companies . However, it shows that the European Governments must take extreme care not to treat companies in other EU Member States differently than domestic companies. There is always a lawyer who will find a way.