French Council of state Confirms Full Deductibility of Exchange Losses on Dividends Under Mother-Daughter Regime
The French Council of State (Conseil d’État) has issued a significant ruling clarifying the tax treatment of exchange rate fluctuations impacting dividends received under the French “mother-daughter” tax regime. The decision, dated July 25, 2025 (n° 487722), confirms that a full deduction is permitted for exchange losses incurred on dividends paid in foreign currency, even when those dividends qualify for the preferential mother-daughter treatment.
Background & case Details
The case stemmed from a dividend distribution by a Czech company to its French parent company. On October 31, 2013, the czech company resolved to distribute a dividend denominated in Czech Crowns (CZK). The French parent company registered the corresponding claim in Euros the following day, with the actual payment occurring the subsequent month. due to a depreciation of the CZK against the Euro during this period, the amount received in Euros was lower than initially valued.
The French company initially applied the mother-daughter regime, deducting the dividend amount as recorded in its accounting records, including a 5% share of qualifying expenses (“QPFC”). It also fully deducted the resulting exchange loss in both its accounting and tax filings.
The Tax authority’s Challenge
The French tax administration challenged this approach, arguing that the deduction under the mother-daughter regime should be calculated based on the actual amount of the dividend received in Euros. Consequently, the administration asserted that the exchange loss should only be deductible up to 5% of the dividend amount.
The Council of State’s Ruling
The Council of State rejected the tax administration’s position. It ruled that the mother-daughter regime applies based on the exercise in which the dividend distribution was decided in principle and its amount resolute. Specifically, the amount of the dividend eligible for the regime is fixed as of the date of the distribution decision.
Thus, fluctuations in the exchange rate between the decision date and the actual payment date do not impact the application of the mother-daughter regime. The Council of State emphasized that any exchange gain or loss is treated under general tax principles.
This means that exchange losses are fully deductible from the results of the exercise in which they are realized, while exchange gains are fully taxable within the same exercise. The ruling clarifies that the exchange rate difference does not alter the amount of the dividend to be deducted or the QPFC to be reintegrated into the taxable result.
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