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Holding company scheme

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DIVIDENDS ELIGIBLE UNDER THE PARENT-SUBSIDIARY SCHEME: ALMOST TOTALLY

EXEMPT (TAX RATE ≤ 1%)

A holding company established in Saint-Martin for at least one year (or which has made a commitment to retain shares in this sense),

holds a stake in its Saint-Martin, French or foreign subsidiaries. Each of these stakes is at least 5% of the capital of the issuer or represents

a cost of at least €1 M.

During the year ended 31 December N, the company achieves a gross profit of €4,400,000 from, for up to €4,000,000 (gross), dividends

eligible under the parent-subsidiary scheme. These dividends are assumed to have been subject to a withholding tax of 15% in the country

where the subsidiaries are established, amounting to €600,000.

Expenses of any nature incurred during the year amount to €100,000, resulting in an accounting profit of €4,300,000.

Calculation of taxable income

Accounting profit:

€4,300,000

Non-accounting deduction of dividends:

- €4,000,000

Non-accounting reinstatement of a proportionate share for fees and expenses:

+ €100,000

Theoretical amount: (4,000,000 – 600,000) x 5% = €170,000. This sum being greater than the amount of expenses of any nature

incurred by the company (€100,000), the proportionate share for fees and expenses is limited to €100,000.

Taxable income:

€400,000

including €100,000 for the proportionate share for fees and expenses on dividends

Amount of corporate income tax (400,000 x 20%):

€80,000

of which corporate tax on dividends: €20,000

NB: withholding tax levied abroad cannot be offset on this tax.

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DIVIDENDS NOT ELIGIBLE UNDER THE PARENT-SUBSIDIARY SCHEME: POSSIBILITY OF

OFFSETTING WITHHOLDING TAX LEVIED ABROAD EVEN IN THE ABSENCE OF A TAX TREATY

A holding company that receives during the year ended 31 December N dividends that are not eligible under the parent-subsidiary scheme

according to the following table:

Country

of origin

Gross

amount 

(1)

Tax levied in the

country of origin 

(2)

Net income 

(3)

Saint-Martin

tax on income 

(4)

Tax credit applied to corporate tax due in Saint-Martin

On corporate tax

due for the year N 

(5)

On corporate tax

for the following years 

(6)

Country A €400 000

€60 000

€340 000

€80 000

(€400k x 20%)

€42 000

€18 000

Country B €600 000

€120 000

€480 000

€100 000

(€600k – €100k) x 20%

€70 000

€30 000

Country C €200 000

€10 000

€190 000

€30 000

(€200k - €50k) x 20%

€7 000

€3 000

Comments:

Column 4:

the amount of tax credit is in any event capped at the amount of Saint-Martin tax levied on the taxable income in question (difference between,

on the one hand, the gross amount mentioned in column 1 and, on the other hand, expenses deductible from income under Saint-Martin domestic legislation

such as for example management expenses). For Country A such charges are negligible.

Column 5

et

Column 6:

Tax deducted at the source in the foreign country, capped if appropriate (see Col 4), is offset for up to 70% of the amount of

corporate tax due under the year N; the balance (30%) increased, if appropriate, by the fraction that could not be offset under the year N, is carried over to

following years indefinitely and for an unlimited amount.

15

JUNE 2014 EDITION

VERY FAVORABLE CORPORATE TAX