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France cleared to spread impact of scrapped dividend tax over two years

[PARIS] France on Friday won the backing of the European Union's Eurostat statistics agency to spread over two years the reimbursement of a corporate dividend tax it had to scrap after it was struck down in court.

The ruling came as a relief for the French government as the hole left by the 10 billion-euro (S$16.23 billion) tax would have weighed heavily in the public accounts if repaid in a single year and risked pushing it over the European Union's budget deficit cap.

France's national statistics agency INSEE proposed in November that the reimbursement of the tax be accounted for in two years, which Eurostat accepted.

"Based on the information provided by INSEE, Eurostat can accept the proposed treatment," the European agency said in a letter to its French counterpart.

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It added that France could count cases accepted for reimbursement last year as spending in 2017, and cases validated this year as spending in 2018.

The Socialist government of former president Francois Hollande introduced the 3 per cent dividend tax in 2012 in an effort to encourage companies to reinvest profits.

Some companies paying the tax successfully challenged it before the European Court of Justice on the grounds that it ran against EU law by creating double taxation within a group.

The French government was targeting a public deficit of 2.9 per cent of economic output last year. If confirmed in an official estimate due on March 26, it would be the first time in a decade that France has stayed within the EU limit of 3.0 per cent.

The government introduced a new exceptional charge last year on big companies to help offset the impact of the tax reimbursement.