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French tax law does not contemplate the unilateral avoidance of double taxation, except indirectly under (i) the applicable territoriality system whereby income derived from a permanent establishment abroad is not taxable in France, (ii) the domestic participation exemption regime for qualifying dividends and capital gains, or (iii) the domestic law provisions allowing, under conditions, a foreign tax credit for CFC income attributed to French controlling shareholders. Otherwise, unless a tax treaty applies and provides for specific rules for the elimination of double taxation, foreign taxes are not creditable in France. Instead, the foreign tax may be deducted as an expense when assessing the foreign income to French tax.

Most French tax treaties provide for the elimination of double taxation by way of an exemption system for business profits and a credit system for passive income. Where the credit system applies, it is generally limited to the tax that the other country is allowed to impose under the treaty (thus, if the source country withholds tax in excess of the rate allowed under the treaty, the credit is limited to the treaty rate), and is capped at the amount of the French tax on the same income. Unused credits cannot be carried forward and are forfeited. As confirmed by a 2016 Administrative Supreme Court ruling, the taxpayer cannot claim a refund by France of any unused excess foreign tax credit. However, pursuant to another 2017 Appeals Court decision, in situations where an item of foreign-source income is subject to a one-off withholding tax abroad, but pursuant to French law, is added to taxable income in France in fractions over more than one tax year, then the taxpayer should be able to fraction the foreign tax credit and use it in portions over the relevant number of years. In that case, however, any unused (part of the) fraction attributed to a given year is forfeited.

The foreign tax itself is treated as taxable income; thus French tax is computed on the gross amount before the credit is given.

Where a treaty applies, a 2017 ruling of the Supreme Court allowed taxpayers who are unable to use a foreign tax credit otherwise available under the treaty, for example because of a loss position for the relevant year, to deduct the foreign tax as a current expense unless the relevant treaty expressly disallows such deduction. This position has now been reversed by a legislative provision effective for tax years ending on or after 31 December 2017. Pursuant to the new legal provision, unused foreign taxes available under a tax treaty may not be deducted as an expense in any circumstance. As a result of the new legislative provision, the deduction of a foreign tax as a current expense is now possible only in non-treaty situations.

Note that various French tax treaties (generally with developing countries) grant a matching credit, whereby the credit available in France is higher than the tax actually levied by the source state. France has unilaterally repealed many of those matching credits by way of a guidance issued on 8 June 1993 (notably concerning Cyprus, Egypt, Greece, Portugal, Spain and Singapore). Other available matching credits were abolished on the occasion of signing protocols to existing treaties. In a decision issued in 2015, the Supreme Court ruled that the determination of whether or not a matching credit is available in France must be based on the language used in the specific treaty. Hence, where the treaty provides for the matching credit on condition that the foreign income must have been assessed to tax in the source State, or must have benefitted from tax relief pursuant to an incentive regime in the foreign state, then the payer must prove that the condition required is actually satisfied.