The parent-subsidiary regime (régime mère-fille, Article 216 of the French General Tax Code) allows a French parent company holding at least 5% of a subsidiary's share capital for at least two years to receive dividends from that subsidiary exempt from French corporate tax, except for a 5% lump-sum charge (quote-part de frais et charges) included in taxable income. The effective tax on dividends received is therefore approximately 1.25% (25% IS × 5%), compared to 25% without the regime.

This near-exemption makes the French holding company structure extremely tax-efficient for groups receiving dividend flows from French or EU subsidiaries. It is the French implementation of the EU Parent-Subsidiary Directive (2011/96/EU), which requires EU member states to exempt or significantly reduce tax on inter-company dividend flows within the EU. The parent-subsidiary regime is one of the main structuring tools for Franco-Swiss groups channeling Swiss subsidiary dividends through a French holding.

In a business valuation context, the parent-subsidiary regime affects the normalized earnings of holding companies: dividends received from subsidiaries are largely tax-free, which must be reflected in the DCF model or the earnings-based valuation. The holding company's tax position differs significantly from that of a purely operating company and requires specific modeling of after-tax flows at each level of the group structure.

At Hectelion, we model the parent-subsidiary regime in our group valuations and incorporate it into our Franco-Swiss structuring advice.