The issue. In its decision of 5 February 2021 (No. 430594-432845, Société Performing Rights Society Ltd), the French Supreme administrative court had ruled that a foreign collective management organization (“CMO”) does not, in principle, meet the conditions to be regarded as the beneficial owner of the royalties it collects with a view to distributing them to its members. Consequently, royalties previously collected in France by a French CMO on behalf of a foreign CMO cannot, when paid to the latter, benefit from the provisions of the tax treaty signed with the foreign CMO’s country of residence, which may cap or waive the 25 % French withholding tax provided for in Article 182 B of the French Tax Code.
The application of this case law gives rise to significant administrative complexity, as it requires either, prior to payment by the French CMO, the tax residence of the members of the foreign CMO considered to be beneficial owners, or for those same members to file a subsequent claim with a view to obtaining a full or partial refund of the withholding tax pursuant to the tax treaty concluded with their country of residence.
The solution provided by Article 31. Article 31 of the 2027 French Finance Bill simplifies the obligations imposed on CMOs. In practical terms, a new paragraph II bis of Article 182 B of the French Tax Code provides that, by way of derogation from the general law, where copyright royalties collected by a French CMO to a foreign CMO, the applicable withholding rate (capped or zero) is that provided for in the tax treaty between France and the country in which that foreign CMO is established. Entitlement to this provision is subject to three cumulative conditions: the foreign CMO must be established in an EU Member State or a state linked to France by a tax information exchange agreement (excluding non-cooperative states); it must have entered into a representation agreement with the French CMO; and at least 80 per cent of its members must be resident or established, as at 1 January of the year in which the sums are collected, in that same state. Annual reporting obligations and a monitoring mechanism govern the scheme.
Remaining difficulties. The new framework, which represents a welcome simplification and one long sought after by CMOs in several European countries (some of which have already amended or are in the process of amending their regulations to address the difficulties that may arise from the concept of ‘beneficial owner’ in the context in question), remains, however, subject to a high threshold for the geographical concentration of members (80 per cent) and is likely to raise certain practical questions regarding its conditions of application, which are left open by the wording of Article 31 in its current form.
For further information, please contact:
Benjamin Lichtle, Partner, Bird & Bird
