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FOCUS ON
Holding company scheme
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DIVIDENDS ELIGIBLE UNDER THE PARENT-SUBSIDIARY SCHEME: ALMOST TOTALLY
EXEMPT (TAX RATE ≤ 1%)
A holding company established in Saint-Martin for at least one year (or which has made a commitment to retain shares in this sense),
holds a stake in its Saint-Martin, French or foreign subsidiaries. Each of these stakes is at least 5% of the capital of the issuer or represents
a cost of at least €1 M.
During the year ended 31 December N, the company achieves a gross profit of €4,400,000 from, for up to €4,000,000 (gross), dividends
eligible under the parent-subsidiary scheme. These dividends are assumed to have been subject to a withholding tax of 15% in the country
where the subsidiaries are established, amounting to €600,000.
Expenses of any nature incurred during the year amount to €100,000, resulting in an accounting profit of €4,300,000.
Calculation of taxable income
Accounting profit:
€4,300,000
Non-accounting deduction of dividends:
- €4,000,000
Non-accounting reinstatement of a proportionate share for fees and expenses:
+ €100,000
Theoretical amount: (4,000,000 – 600,000) x 5% = €170,000. This sum being greater than the amount of expenses of any nature
incurred by the company (€100,000), the proportionate share for fees and expenses is limited to €100,000.
Taxable income:
€400,000
including €100,000 for the proportionate share for fees and expenses on dividends
Amount of corporate income tax (400,000 x 20%):
€80,000
of which corporate tax on dividends: €20,000
NB: withholding tax levied abroad cannot be offset on this tax.
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DIVIDENDS NOT ELIGIBLE UNDER THE PARENT-SUBSIDIARY SCHEME: POSSIBILITY OF
OFFSETTING WITHHOLDING TAX LEVIED ABROAD EVEN IN THE ABSENCE OF A TAX TREATY
A holding company that receives during the year ended 31 December N dividends that are not eligible under the parent-subsidiary scheme
according to the following table:
Country
of origin
Gross
amount
(1)
Tax levied in the
country of origin
(2)
Net income
(3)
Saint-Martin
tax on income
(4)
Tax credit applied to corporate tax due in Saint-Martin
On corporate tax
due for the year N
(5)
On corporate tax
for the following years
(6)
Country A €400 000
€60 000
€340 000
€80 000
(€400k x 20%)
€42 000
€18 000
Country B €600 000
€120 000
€480 000
€100 000
(€600k – €100k) x 20%
€70 000
€30 000
Country C €200 000
€10 000
€190 000
€30 000
(€200k - €50k) x 20%
€7 000
€3 000
Comments:
Column 4:
the amount of tax credit is in any event capped at the amount of Saint-Martin tax levied on the taxable income in question (difference between,
on the one hand, the gross amount mentioned in column 1 and, on the other hand, expenses deductible from income under Saint-Martin domestic legislation
such as for example management expenses). For Country A such charges are negligible.
Column 5
et
Column 6:
Tax deducted at the source in the foreign country, capped if appropriate (see Col 4), is offset for up to 70% of the amount of
corporate tax due under the year N; the balance (30%) increased, if appropriate, by the fraction that could not be offset under the year N, is carried over to
following years indefinitely and for an unlimited amount.
15
MARCH 2015 EDITION
VERY FAVORABLE CORPORATE TAX