Indirect Ownership on French CFC rules
For you better understand the French CFC rule, you may
need to know what it means by indirect ownership as it was defined by
the French CFC rules. This plays an important part of the rule as the
rule is mostly meant for companies that are indirectly owned by French
companies but still have share on such entity and are therefore still
required to pay taxes.
There are two meanings of indirect ownership according to
the French CFC rule. The first being refers to a chain of ownership
where the varying percentages that are owned by the French Company in
the chain are multiplied to know if it indeed reached the 50 percent
threshold. You have to understand that if it indeed reached the 50
percent mark, the foreign entity is therefore required to apply the
French CFC rules in its operation.
The second indirect ownership also refers to the rights
that are owned via revenue rulings and have a so called “community of
interest.” the ownership can be determined by the following:
· 1. The French entity’s employees or executives whether they are de jure or
de facto.
· 2. A
share holder of a French entity can be considered an owner if an
individual or his other family member is directly or indirectly holding
a share of the foreign company.
· 3. If a company or group of companies that has a common
shareholder with the French entity and has the biggest share of voting
rights in both entities, they can be considered as indirect owner. Let’s
say for example an entity has a 45 percent interest or share in the
foreign company and the other part is owned by another company. When
both companies have the same majority and owned by the same
shareholders, plus the 50 percent threshold is deemed to be reached then
they are also considered as indirect owners.
· 4. Another basis of indirect ownership is if it is an
economically dependent commercial partner of the French tax payer.
There is another exception of the 50 percent threshold if
the foreign entity is a non-listed company owned to the extent of 50
percent or more by some French Companies. If in this case the foreign
companies are a listed company, it is the job of the French entities to
prove that they have acted in concert.
Another exception is if the foreign entity is under the
proprietorship of companies that are dependent from French Entity as
based on the meaning of the article 57 Of the FTC. It means that it is
essentially owned up to 50 percent or possibly more by the French entity
or company.
Now that you know about indirect ownership, you could
easily identify if you fit one of the descriptions and if you do make
sure that you get to understand the guidelines of the French CFC rules
to avoid complications.
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