Tax newsletter – august 2019

Tax newsletter – august 2019

I. CORPORATE TAXATION

• Financial expenses ceiling: the French Tax Authorities (“FTA”) are launching a public consultation on their comments – BOI-IS-GPE-20-20-110 of July 31st, 2019

Although they may be amended following the consultation that ends on September 30th, 2019, the FTA comments are enforceable as soon as they are published.

II. TAX AUDIT

• Tax fraud: towards an effective selection? – Referee of the Court of Auditors on March 4th, 2019, S2018-3520 and 2018 Annual Report of the Tax Fraud Committee (“Commission des Infractions Fiscales”, “CIF”)

The Court of Auditors analyses the budgetary consequences of the law of October 23th, 2018 and asks for a selection of the cases to be investigated efficiently. In addition, the CIF indicates in its annual report that, according to the FTA, the files automatically transmitted to the public prosecutor’s office should be between 1,500 and 2,000 per year.

• Oups.gouv.fr: the website on the right to make mistakes – Statement by the Minister of Public Accounts on June 4th, 2019

Following the ESSOC law of August 10th, 2018, the purpose of the oups.gouv.fr website is to identify administrative errors and the main difficulties encountered by taxpayers and their advisors.

• Tax Fraud: publication of the FTA comments – BOFIP of June 27th, 2019, CF-PGR, CF-INF, REC-SOLID

The FTA have published their comments on the strengthening of criminal sanctions, the amendment of the criminal prosecution procedure, the tax transaction in the event of criminal proceedings and the creation of the Financial Judicial Investigation Service (“Service d’Enquêtes Judiciaires des Finances”, “SEJF”).

III. INTERNATIONAL TAXATION

• Trust: reporting obligations of trustees – Decree n°2019-584 on June 13th, 2019, published in the Official Journal (“JO”) on June 14th, 2019

This decree specifies the content and modalities of this reporting obligation. Section 369 A of Annex II to the French Tax Code (“FTC”) includes in the scope of the annual reporting obligation movable assets (and not only real estate rights and properties included in the taxable basis of the Real Estate Wealth Tax).

• Settlement of tax disputes within the European Union: implementation and procedures – Decree 2019-616 on June 21st, 2019, published in the JO on June 22nd, 2019

The publication of the Decree allows the effective implementation of the new double taxation elimination procedure aimed at facilitating the resolution of non-compliant tax situations that may arise from the application or interpretation of existing tax treaties by Member States.

• Branch Tax: assessment of the taxable basis – Decision of the French Administrative Supreme Court (“CE”) on June 24th, 2019, n°413156, Société D’estienne d’Ovre

The CE considers that the base made up of profits deemed distributed refers to the total amount of profits realised in France by the foreign company, whether taxable or exempt, after deduction of corporate taxation.

• Branch Tax: not compliant with the freedom of establishment – Decision of the CE on July 10th, 2019, n°412581, Société Cofinimmo

The CE considers that the provisions of Section 115 quinquies of the FTC establish a disadvantageous calculation method, in breach of the freedom of establishment, since they do not allow the foreign company to demonstrate that it has not disinvested the profits of their French transactions.

• Transfer price: financing of a subsidiary by way of subscription of convertible bonds – Judgment of the Montreuil Administrative Court (“TA”) on July 2nd, 2019, n°1705606-1705609, EDF International and EDF

The Montreuil TA considers that the difference between the remuneration rate applied (1.085%) and the rate that would have been applied for “classic” bonds (4.41%) can be considered as an indirect transfer of benefits abroad, in the absence of a counterpart for the parent company.

• Digital Services Tax (“Gafa Tax”): the law is enacted – Law n°2019-759 on July 24th, 2019, published in the JO on July 25th, 2019

France is becoming one of the first countries to tax the profits of the world’s largest technology companies. This 3% tax, which applies to companies whose revenues exceed €750 million worldwide and €25 million in France, comes into force in 2019 and will give rise to the payment of a one-off instalment for this year.

IV. INDIVIDUAL TAXATION

• Owner Buy Out: a complex transaction – Decision of the CE on February 8th, 2019, n°407641

The CE considers that the transaction by which a secondary residence is sold to a SCI (set up by the taxpayer, his wife and children) and then immediately rented to the seller – allowing the latter to record a tax loss resulting from work carried out on the building – constitutes an abuse of right.

• E-Registration: future use of electronic signatures – Ministerial reply n°9344, JO Senate on June 6th, 2019, p. 2947

This online service offer – which will primarily cover inheritance declarations, gift declarations and share transfers – will gradually become operational from 2020 onwards.

• Rebuilding of Notre Dame: gifts are eligible for a 75% tax reduction – Law n°2019-803 on July 29th, 2019 (Section 5)

Within the limit of 1,000 euros, gifts made between April 16th and December 31st, 2019 as part of the national subscription for rebuilding Notre-Dame Cathedral are eligible for a personal income tax reduction at the rate of 75%.