Dividend or shareholder loan: moving cash up from a subsidiary

Quick answer. To move cash from a subsidiary up to a holding company, the dividend under the parent-subsidiary regime (Articles 145 and 216 of the French Tax Code) is almost fully exempt, with a 5 % add-back of costs, meaning roughly 1.25 % corporate tax. The shareholder current account and the cash pooling agreement offer more flexibility but must stay repayable and bear market-rate interest.

Your subsidiary is generating cash and your holding company needs it, whether to repay an acquisition loan, fund a new deal or simply centralise the group's cash. Three channels exist: paying a dividend, lending through a shareholder current account, and setting up an intragroup cash pooling agreement. They are not equivalent. Tax cost, reversibility and reclassification risk differ sharply. The wrong choice can turn a neutral upstream into an extra tax bill or a tax adjustment.

The topic became more sensitive on 1 January 2026. The 1.4-point increase in the CSG social levy enacted in the 2026 Social Security Financing Act raised the flat tax on dividends paid to an individual to 31.4 % (12.8 % income tax plus 18.6 % social levies). A poorly designed upstream that ends up in the manager's pocket rather than in the holding company can therefore cost nearly a third of the amount.

Conversely, when properly structured, the upstream from subsidiary to holding remains one of the most efficient arrangements in French tax law. That is the whole point of managing your holding company taxation: choosing the channel that preserves group cash without needless friction.

One useful distinction: an upstream is not always a depletion of the subsidiary. A dividend permanently leaves equity; a shareholder loan and a cash pooling agreement create a repayable debt. This distinction drives the entire analysis.

Where the holding company owns at least 5 % of the subsidiary's capital and keeps the shares in registered form for at least two years, it can elect the parent-subsidiary regime of Articles 145 and 216 of the French Tax Code. Dividends moved up are then exempt from corporate tax, except for a 5 % add-back of costs and expenses included in the holding company's taxable result.

In practice, on 100 of dividend, 5 are added back and taxed. At the standard 25 % corporate tax rate, that is 1.25 of tax, an effective rate of about 1.25 % of the dividend. It is the lowest cost of all channels. We explain the mechanism further in our article on holding company taxation.

Two substantive conditions deserve attention. First, the subsidiary must have distributable reserves: no profit or reserve, no dividend. Second, the distribution decision requires a shareholders' meeting and a strict procedure, as set out in our guide to dividend distribution rules.

What if the holding is in tax consolidation?#

Where the holding company owns at least 95 % of the subsidiary's capital and the group has elected for tax consolidation, the add-back on intragroup dividends drops to 1 % under Article 223 B of the French Tax Code. The upstream then becomes almost entirely neutral. The consolidation election runs for five years, renewable by default, under Articles 223 A to 223 U.

The shareholder current account is not a permanent upstream: it is a debt owed by the company to its shareholder, here the holding lending or leaving funds with the subsidiary, or the reverse. It is repayable at any time, in principle, and may bear interest. Its main strength is reversibility.

But watch the direction. To move cash from the subsidiary up to the holding, the mechanism only works if the holding first lent to the subsidiary: repaying the current account then returns the funds tax-free, since it is the repayment of a debt and not income.

Any interest is deductible at the level of the paying company, within a cap set by Article 39-1-3° of the French Tax Code. For twelve-month financial years ended 31 December 2025, this maximum deductible shareholder loan rate stands at 4.55 %. Beyond that, the excess interest is not deductible. We cover the calculation and the formalities in our analysis of shareholder current account interest.

As soon as a group has several linked companies, the cash pooling agreement becomes the most powerful steering tool. It organises cash pooling: a subsidiary's surplus feeds the holding or a pivot company, which redeploys it where needed.

Legally, this agreement rests on the exception to the banking monopoly in Article L511-7 of the French Monetary and Financial Code. It is only valid between companies linked by effective control. Outside that perimeter, lending between companies may be classified as the illegal exercise of the banking profession, punishable by three years' imprisonment and a 375,000 euro fine (Article L571-3). The cash pooling perimeter must therefore be defined rigorously, which we frame in our group treasury management engagements.

The right channel depends on the goal: a permanent exit of cash, temporary funding or ongoing flow management. Here is our decision grid.

The procedure we follow on an upstream engagement runs as follows:

1. Confirm that the subsidiary holds distributable reserves and the matching actual cash.
2. Verify the parent-subsidiary conditions (5 % of capital, 2 years, registered shares) or consolidation (95 %).
3. Decide between a permanent exit (dividend) and a temporary need (current account or pooling).
4. Formalise: meeting minutes for the dividend, a written and dated agreement for the current account or pooling.
5. Set an interest rate at least equal to the market when the operation is intragroup and remunerated.
6. Track every flow in the group's accounts using a reliable accounting management tool.

A few situations change the picture and warrant tailored review.

• Holding without the two-year holding period. The parent-subsidiary regime requires a two-year retention commitment. An upstream before that period may forfeit the exemption and trigger a clawback.
• Struggling subsidiary. An advance or debt waiver to a fragile subsidiary requires a demonstrated own interest of the lending company. This is a sensitive point we systematically document.
• Minority individual shareholders. A distribution benefits all shareholders pro rata. If minority holders are present, the dividend moves part of the cash outside the group, which the current account avoids.
• Multi-company groups. For distribution groups or structures with several subsidiaries, the cash pooling agreement is often essential to smooth each entity's needs.

The underestimated risk is not the tax cost of the right channel: it is the reclassification of the wrong one. An interest-free advance to a subsidiary can be classified as abnormal management when the lending company gains no own interest from it. The tax authorities have long held that the group interest alone does not justify an advantage granted to another company.

What the authorities look at first on these files: a written and dated agreement, an interest rate consistent with the market, a genuine repayment capacity, and the reality of the distributed cash. A persistently overdrawn current account owed by the subsidiary to its individual shareholders draws particular scrutiny, as it may be reclassified as distributed income.

In the group files we handle, the most common mistake is not choosing the wrong channel, but mixing all three without formalities. A subsidiary that moves cash up by dividend one year, by advance the next, with no clear agreement or set rate, exposes the group to both a loss of deductibility and a reclassification risk.

Recently, the manager of a services group asked us to repay the holding's acquisition loan using the cash of a profitable subsidiary. The temptation was an immediate cash advance. Our reading was different: since the subsidiary held reserves and the holding owned 100 % of the capital, the parent-subsidiary dividend moved the cash up for roughly 1.25 % cost, with no debt to repay and no agreement to monitor. The advance would only have postponed the problem.

Our baseline arbitration is simple. For an earned, durable result, the parent-subsidiary dividend remains the most efficient channel. For a temporary need or a one-off imbalance, the current account or the cash pooling agreement provide flexibility. The danger is handling a permanent need with a temporary tool, or the reverse. As chartered accountants registered with the French Institute and statutory auditors, we calibrate this choice against available reserves, the ownership structure and the group's financial commitments.

Hayot Expertise tip. Before any significant upstream, have a statement of distributable reserves and actual cash drawn up for the subsidiary. Choose the channel by horizon: permanent or temporary. And always formalise in writing, whether a distribution minute or a cash pooling agreement. Our corporate tax support secures each step.