Tax alert October 2016

 I. CORPORATE TAX

I.1. French tax

 Tax consolidation regime and derogation from the tax consolidation agreement – French Administrative Supreme Court “CE”, October 13rd 2016 n°388410, S.A. Safran

The CE considers that a letter signed by the person in charge of the tax department (derogating from the tax consolidation agreement and sent to the executives of the parent company and the concerned subsidiary) does not contradict the interests of the minority shareholders.

 Self-controlled securities and long term capital gain regime – CE, October 20th 2016, n°397537, Sté Compagnie du Cambodge

The CE annuls – on the ground of misuse of authority – the French Tax authorities’ (“ FTA”) guidelines. The latest mentioned that self-controlled securities were excluded from the long term capital gain regime as the voting rights attached to these self-controlled shares could not be exercised by the company.

 Decrease of the Corporate Income Tax (“CIT”) rate – Draft Finance law for 2017 (article 6)

A progressive decrease of the CIT rate to 28% is envisaged as well as an extension of the scope of the 15% reduced CIT rate.

I.2. International tax

 Success fee and indirect profit transfer – CE, September 21st 2016 n°382733

A success fee paid by a French subsidiary to its Dutch grand-mother with respect to its assistance in the sale of a real estate property held by the French company – on which a substantial capital gain was realized – cannot be considered per se as an indirect profit transfer if the conditions of such an indirect profit transfer are not fulfilled (notably with respect to comparable transactions).

II. INDIVIDUAL TAXATION

 Social contributions on passive income and free movement of capital – French Appeal Administrative Court (“AAC”), March 25th 2016 n°13MA00537

A French tax resident (living in Monaco) affiliated to the Monaco social security system can rely on the free movement of capital to obtain the partial reimbursement of the social contributions paid on its passive income. This decision confirms the position we supported for taxpayers affiliated to a social security system located outside the European Union.

 Management package: reclassification of the capital gain – Administrative Court (“AC”) of Paris, July 12th 2016, n°1429650/1-1, Cie de l’Odyssée

According to the AC of Paris, should the FTA intend to tax (part of) the capital gain generated by an employee (in the case at hand, on preference shares) as wages, they have to demonstrate the absence of financial risk and of capital loss risk for the employee.

 Contribution followed by a sale of the shares prior to November 14th 2012 – Tax Abuse of Law Committee, cases n°2015-23, 2016-06, 2016-07 and 2016-08

The Tax Abuse of Law Committee has provided additional information on the nature and the quantum of the reinvestment of the proceeds derived from the sale of the shares.

 Fine for non-disclosure of assets held by a trust : rejection of the Preliminary Ruling on the Constitutionality (“PRC”) of this fine – CE, October 13th 2016, n°402318

The PRC on this fine – due in case of non-disclosure of assets held by a trust (article 1649 AB of the French Tax Code) – has been rejected by the CE for lack of interest (direct and certain) for the applicant (in particular, the association of the repented taxpayers).

 Unconstitutionality of the public trusts register – Constitutional Council (“CC”), October 21st 2016, n°2016-591 QPC, Mrs S

The public trusts register has been declared unconstitutional as it creates a disproportionate intrusion into the privacy, notably because it can be viewed by any person without any restriction and supervision.

 Furnished rental: « Airbnb » and professional social security contributions – Draft social security financing law for 2017 (article 10)

The furnished rentals, performed on a short period of times and for occasional customers generating annual rental incomes exceeding EUR 23,000, would be automatically considered as a professional activity for social security contributions purposes. As a consequence, the net rental income would be subject to social security contributions applicable to independent workers (i.e. around 35%).

 Free shares plan: Amendment of the tax and social regime – Draft Finance law for 2017 (article 4 bis)

The MPs have adopted at first reading, against the Government’s opinion, a correction of the tax and social regime applicable to free shares granted to employees. According to informal information, this article could be deleted.

 Wealth tax capping: anti-abuse mechanism – Draft Finance law for 2017 (article 4)

This mechanism would allow the FTA to consider, under certain conditions, as income to retain for the computation of the wealth tax capping, income distributed to a company liable to CIT which is controlled by the taxpayer.