TAX NEWSLETTER September 2019

TAX NEWSLETTER September 2019

I. CORPORATE TAXATION

• Sale of temporary usufruct in French real estate company (French “SCI”) shares: the valuation must be based on provisional distributions – Decisions of the French Administrative Supreme Court (“CE”) on September 30th 2019, n°419855, Société Hôtel Restaurant Luccotel and n°419860, Société VP Santé

The valuation of the usufruct in unlisted shares according to the discounted cash flow method should be based not on the company’s projected taxable income but on its provisional distributions.

II. TAX AUDIT

• Tax fraud and money laundering: articulation of tax and criminal proceedings – Decisions of the French Civil Supreme Court on September 11th 2019, n°18-81.980, 18-81.067, 18-82.430, 18- 81.040, 18-83.484 and 18-84.144

In six decisions, the French Civil Supreme Court clarified the application of criminal and tax penalties, the application of the interpretative reserves issued by the Constitutional Council (“CC”) (authority of res judicata of the tax on criminal matters, seriousness of the failure and proportionality of sentences) and money laundering’s repression.

• French “Verrou de Bercy”: constitutionality of the “Verrou de Bercy” ‘s removal in criminal proceedings – Decision of the CC on September 27th 2019, n°2019-804 QPC, AFEP

The CC considers that the provisions of the Law of October 23rd 2018 on the criminal prosecution of the most serious acts of tax fraud comply with the French Constitution.

III. INTERNATIONAL TAXATION

• French wealth tax (“ISF”): non-resident equity securities are exempted financial investments – Decision of the French Civil Supreme Court on July 3rd 2019, n° 17-26.820, FS-PB

The French Civil Supreme Court rules that ISF’s exemption for financial investments of non-residents also applied to equity securities. Non-resident taxpayers who have included the value of equity securities in their ISF return may claim for a refund, if the claim period has not expired.

• French tax credit: loan interest paid by a foreign branch to the French head office may be eligible to a French tax credit – Decision of the CE on July 10th 2019, n°418108, BNP Paribas

Interest paid by foreign branches to a bank’s French headquarters in remuneration for loans intended to finance their activities is eligible for a French tax credit if the interest has been subject to withholding tax.

• Exit tax: the request for suspension of payment must be filed at least 90 days before the transfer – Decree n°2019-868 on August 21st 2019, published in the Official Journal (“JO”) on August 23rd 2019

For transfers made on or after November 22th 2019 in a Non-Cooperative State and Territory (“ETNC”) or a State or territory outside the European Union (“EU”) that has not concluded agreements with France on assistance in combating fraud and evasion and assistance in recovery, the request for suspension of payment must be filed at least 90 days before the transfer, and no longer within the 30 days preceding the transfer.

IV. INDIVIDUAL TAXATION

• Securities’ dismemberment of ownership: the waiver of the usufruct is a gift – Decision of the French Civil Supreme Court on April 10th, 2019, n°17-19733

In the event of a securities’ dismemberment of ownership granting bare ownership to a company, absence of dividends’ perception by the usufructuary constitutes a waiver of usufruct and a fortiori a taxable gift.

• Contribution-transfer of securities: the sale to oneself is not an economic reinvestment – Decision of the CE on July 10th 2019, n°411474

Where a transaction involving the contribution and sale of securities has benefitted from tax deferral before November 14th 2012, the reinvestment of the sale’ proceeds in the acquisition of securities belonging to the taxpayer is not of an economic nature and may therefore lead to the reconsideration of tax deferral.

• Social security contributions: submission of a Swiss pension to the General Social Security Contribution (“CSG”) when a French pension is also received – Decision of the CE on July 24th 2019, n°416662

An insured person’s State of residence may retain contributions from pensions paid by another Member State without disregarding the principles of unity of social legislation and prohibition of double contributions where the insured person also receives pensions paid by the Member State of residence.

• Capital gains of individuals: the tax deferral system for capital gains on securities censored by the European Court of Justice (“ECJ”) – Decision of the ECJ on September 18th 2019, 662/18 (AQ) and 672/18 (DN)

The ECJ censors the tax regime applicable to deferred capital gains which leads to a breach of equality (non-application of the allowances for holding period to capital gains resulting from an exchange before 2000). Thus, a claim based on the ECJ’s decision is possible for the concerned capital gains.

• Holding company: conditions for the application of the Dutreil exemption – Decision of the Court of Appeal (“CA”) of Rennes on October 8th 2019, n°17/0833

According to the CA, the holding company must maintain (for the required period of time) its animation function in its subsidiaries, which must have an economic activity. However, it is not required that the perimeter remains unchanged.