In a notable decision dated July 7, 2026 (Req. No. 508049, BNP Paribas), the French Council of State (Conseil d’État) decided to refer crucial preliminary questions to the Court of Justice of the European Union (CJUE). These questions concern the compatibility with European Union law—and more specifically with the “Parent-Subsidiary” Directive—of including eligible dividends in the payroll tax subjection ratio for taxpayers who are partially subject to VAT.
This decision opens a new chapter in tax litigation regarding the interactions between European dividend exemptions and payroll-based taxes in France.
1. Context of the Dispute: The Integration of Dividends into the Payroll Tax Ratio
The dispute submitted to the supreme administrative court concerned payroll tax contributions paid by BNP Paribas for the years 2014 to 2019.
For taxpayers partially subject to Value Added Tax (VAT)—which is the case for many operators in the financial sector—the payroll tax is levied on a fraction of the remuneration paid. This fraction is determined by a ratio established between:
- Numerator: Revenues that did not give rise to a right to deduct VAT;
- Denominator: Total revenues.
Under the current French rule, received dividends, the receipt of which falls outside the scope of VAT, are integrated into both the numerator and the denominator of this ratio.
The applicant company argued that this mechanism mechanically leads to an increase in the fraction of salaries subject to tax, ultimately equivalent to an indirect taxation of the dividends received. According to the company, such an outcome disregards the objective of exemption and tax neutrality guaranteed by Article 4 of Directive 2011/96/EU (known as the “Parent-Subsidiary” Directive).
2. The Council of State’s Choice: A Preliminary Reference Motivated by the Complexity of European Norms
Faced with the challenges raised, the Council of State considered that existing European case law did not make it possible to determine with absolute certainty the compliance of this national mechanism.
The supreme court therefore decided to ask the Court of Justice about two fundamental aspects:
- The Objective of Neutrality: Does the objective of economic and tax neutrality pursued by the Parent-Subsidiary Directive preclude a tax levied on remuneration when the taxable fraction of such salaries increases proportionally to the amount of dividends received?
- The Basis of Neutralization: If so, should the neutralization of these dividends apply only to the quota-part of costs and charges re-integrated into taxable income, or should it apply to the entirety of the dividends received?
Presenting a serious difficulty and proving decisive for the resolution of the dispute on the merits, these points led the Council of State to stay proceedings pending clarification from Luxembourg.
3. Analysis and Outlook for Businesses
For practitioners and taxpayers concerned, this preliminary reference constitutes a favourable development. It comes in a context marked by persistent uncertainties generated by recent European case law regarding the overlapping of taxes and dividend exemptions.
Nevertheless, the outcome of this procedure remains open: we note that the conclusions delivered by the public rapporteur tended rather to favour the compatibility of the French mechanism with EU law.
Companies liable for payroll tax and receiving significant dividend flows will need to closely monitor the follow-up of this case before the CJUE, which could redefine the contours of the subjection calculation for financial groups and institutions.
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