The French Holding Company Tax under Article 235 ter C CGI: Focus on International Situations
Article 7 of the 2026 Finance Act, codified in Article 235 ter C of the French Tax Code (CGI), introduces an annual 20% tax based on the market value of certain non-business assets held by passive holding companies, applicable to financial years ending on or after 31 December 2026.
While the domestic mechanism has already been widely commented on, it is in its cross-border dimension that the tax raises the most delicate questions: scope of application to foreign companies, designation of the taxpayer according to the location of the seat, compliance with European Union law and interaction with tax treaties.
It is these international aspects of the tax that this note deciphers.
1. International scope: French companies and foreign companies
Liability requires three cumulative conditions, assessed at the financial year-end:
ownership of more than 50% of the rights by an individual (or an assimilated family circle) or de facto exercise of decision-making power;
ownership of assets with a market value of at least €5M, assessed company by company;
receipt of at least 50% passive income.
The text defines the taxable company by its characteristics, without calling it a holding company, and distinguishes according to the company's seat. The situations in which holding companies are taxed in an international context are far broader than one might imagine.
A control condition that is indifferent to the shareholders' residence for French companies
Companies with their seat in France and subject to corporate tax, automatically or by election, are covered as soon as an individual holds 50% of them or exercises decision-making power, whatever that person's tax residence — in France or abroad. The tax is then payable by the company itself.
Foreign companies and the safeguard clause
Companies with their seat outside France are also covered, provided they are subject to a tax equivalent to corporate tax or are capital companies (LLC-type), and that at least one individual shareholder is a French tax resident. Foreign-law family wealth management companies (Luxembourg, Switzerland) are notably concerned.
A safeguard clause nevertheless provides that the tax is not due if the taxpayer shows that the choice of a foreign seat and the holding of the shareholdings are not intended to circumvent French tax legislation, the burden of proof resting on the taxpayer.
A question as to the tax base remains in the case of a foreign company: should only the shareholdings held by French tax residents be taken into account, or should all the shareholdings of a family group be aggregated as soon as one of its members is a French tax resident?
The first reading can rely on the safeguard clause. Also pending, awaiting the administrative guidelines, are the definition of the seat in France (registered or actual, where the foreign company is managed from France by a French resident) and the determination of the shareholder's tax residence under treaty law.
2. The taxpayer and payment arrangements vary according to the location of the seat
The taxpayer changes depending on where the holding company is resident.
Where the company is established in France, the tax is payable by the company itself, assessed with the corporate tax return and not deductible for corporate tax purposes.
Where the company is established abroad, the taxpayer is the French tax-resident individual holding more than 50% of the rights; the tax base is then the fraction of the market value of the shareholding representing the value of the taxable assets, and the tax is reported on the annual income tax return.
French holding company — Taxpayer: the company. Adjustment: no overall cap based on income.
Foreign holding company — Taxpayer: the French tax-resident individual. Adjustments: credit for similar foreign taxes; cap at 75% of worldwide income.
Two corrective mechanisms thus benefit individual shareholders of foreign companies: the credit for wealth taxes paid abroad on non-operating assets — which raises the question of which foreign taxes are similar in nature to the tax — and a cap at 75% of worldwide income net of the previous year, modelled on the IFI cap. Conversely, Article 975 CGI provides an IFI exemption for assets subject to the tax.
3. Compliance with European Union law in question
The French shareholder of a European company must pay the tax after distributing and paying income tax, unlike the shareholder of a French company: the taxpayer and payment arrangements differ solely according to where the company is resident. This difference in treatment raises the question of which freedom to invoke — the free movement of capital appears available given how control is calculated, presumed from distributions and not requiring effective involvement in the company's management (Conseil d'État, 30 September 2019, No 418080).
The usual justifications for a restriction appear fragile. Combating tax evasion and artificial arrangements runs up against the absence of a specific exemption clause, since merely holding the targeted assets does not in itself establish artificiality. The coherence of the tax system, whose counterpart would be the IFI exemption under Article 975 VII CGI, appears insufficient. The effectiveness of tax audits and the balanced allocation of taxing powers between Member States remain to be demonstrated.
The scheme's compatibility with EU law therefore appears debatable.
4. The effect of international tax treaties
Two questions arise: can a French company be liable in respect of taxable assets located in a State bound to France by a treaty? Can a French resident be subject to the tax in respect of assets held by a foreign company?
The tax is a tax on wealth, not on profits. It should therefore not apply where the treaty contains a "Capital" article — provided it qualifies as a covered tax, whereas it is neither identical nor similar to any tax on the list of "taxes covered". The difficulty is real: can it be linked to the IFI when, precisely, the assets subject to it are excluded from the IFI base (Art. 975 VII CGI)? The treaty interaction therefore remains uncertain and will call for case-by-case analysis, treaty by treaty.
Conclusion
With its 20% rate, its targeted base and its cross-border scope, the tax under Article 235 ter C CGI requires a review of wealth structuring strategies involving French or foreign companies with more than €5M in assets.
The international grey areas — definition of the actual seat, scope of shareholdings to be taken into account for a foreign company, compliance with EU law, treaty characterisation of the tax — open up as many avenues for securing positions as for potential litigation. An audit of the situations concerned, particularly structures held by French residents through Luxembourg or Swiss entities, appears necessary before 31 December 2026, within the limits of a possible recharacterisation as an abuse of law.
Eve d'ONORIO di MEO
Partner — Certified Specialist in Tax Law — Marseille and Geneva Bars (EU/EFTA Lawyer)
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