18 Jan TAX NEWSLETTER December 2020
I. CORPORATE TAXATION
• Intragroup loans: all evidence provided by a company to justify the interest rate charged on loans from a related company must be carefully reviewed – Decision of the 3rd and 8th chambers of the French Administrative Supreme Court (“CE”) on December 11th, 2020, No. 433723, SA BSA
The CE judges that the fair market value of interest rates applied between related companies is assessed with respect to all the supporting evidence provided.
• Local taxes: the reduction of the contribution corporate value-added (« CVAE ») and the contribution on corporate property (“CFE”) is acted – Finance Bill for 2021, No. 2020-1721 on December 29th, 2020
With respect to instalments due in 2021, CVAE is reduced by half and the capping rate of the territorial economic contribution (“CET”) based on added value is lowered from 3% to 2%. The property tax on buildings and the CFE levied on industrial buildings are also reduced by half. Companies may request a change in their instalments, as from the January 2021’instalment for those paying it on a monthly basis, and for the others, by submitting to the public accountant in charge of CFE’s collection – fifteen days before the due date of the payment – a dated and signed declaration.
• Value Added Tax (“VAT”): the consolidated VAT group regime is adopted – Finance Bill for 2021 No. 2020-1721 on December 29th, 2020
An optional group regime is created for VAT purposes between taxpayers established in France with financial, economic and organizational relations between them. These provisions will be applicable as from January 1st, 2023, should the election for this regime be performed before October 31st, 2022.
II. TAX AUDIT
• Consolidated tax group: the requirement for a regular tax audit of the parent company is specified – Decision of the 3rd and 8th chambers of the CE on November 4th, 2020, No. 423408
The CE considers that the collection by the French Tax Authorities (“FTA”) of elements specific to the parent company of a consolidated tax group, as a member of the group, and of information enabling the audit of the group’ profit and loss statements does not constitute a tax audit of the parent company.
• Deductible VAT: the time-limit for correcting the failure in filling VAT returns runs from the deadline for the subscription of this declaration – Decision of the 9th and 10th chambers of the CE on November 23rd, 2020, No. 428497, Société des vignobles Marengo Pères et Fils
The CE considers that the 2-year time-limit to rectify the reporting obligations concerning the amount of input VAT or a VAT credit carry-over, runs from the deadline for the subscription of this declaration or for the subscription of the declaration relating to the first credit carried over.
• Hidden activity: the relevance of the taxpayer’s mistake is assessed with respect to all relevant circumstances – Decision of the 9th and 10th chambers of the CE on November 27th, 2020, No. 428898
The CE considers that the relevance of the mistake argued by a taxpayer – who failed to disclose his activity in France (as tax was paid in a foreign country) – is assessed in the light of all the circumstances of case and, in particular, the tax rates available in the two countries and the terms and conditions for the exchange of information.
III. INTERNATIONAL TAXATION
• France and Ireland Tax treaty: a French company may constitute an Irish company’s permanent establishment in France – Decision of the Plenary Assembly of the CE on December 11th, 2020, No. 420174, Société Conversant International Limited
Pursuant to section 2,9-c of the France and Ireland Tax treaty, the CE judges that a French company, determining on a regular basis (and even if it does not officially enter into contracts on behalf of its sister Irish company), transactions which the Irish company merely endorses and which are binding on it, constitutes a permanent establishment in France of the Irish company.
• Covid-19 and cross borders workers: mutual agreements enforcement is postponed to March 31st, 2021 – Update of the impôt.gouv.fr website on December 14th, 2020
Agreements between France and Germany, Belgium, Switzerland and Luxembourg concerning teleworking days because of the health crisis will be in force until March 31st, 2021.
• Withholding tax on salaries: the reform is abandoned – Finance Bill for 2021, No. 2020-1721 on December 29th, 2020
The amendment of the withholding tax on salaries, pensions, and life rents paid to non-residents, scheduled to be effective in 2021, is abandoned. The withholding tax will therefore remain, for 2021 and the following years, computed according to a three-tier scale and will remain partially releasing.
IV. INDIVIDUAL TAXATION
• Housing tax reform: the 30% reduction is applicable as from January 2021 – Press release Minefir on November 30th, 2020, No. 416
In order to benefit as from January 2021 from the 30% reduction on the housing tax with respect to their main residence, taxpayers paying monthly instalments had to reduce it themselves before December 15th, 2020. Otherwise, the reduction will only be effective as from February 2021.
• Exceptional wealth contribution (« CEF »): the CEF is compliant with the European Convention on Human Rights (« ECHR ») – Decision of the Commercial chamber of the French supreme civil Court on December 2nd, 2020, No. 18-26.479 and 18-26.480
The French Supreme civil Court considers that the CEF, paid in 2012 by taxpayers, was compliant with Section 1 of the Protocol No. 1 to the ECHR recognizing the protection of property. Appeals may be lodged shortly before the European Court of Human Rights, in Strasbourg.
• Individuals’ capital gains on real estate: publication of new comments from the FTA – BOI-RES- 000078 on December 3rd, 2020
The FTA clarify the eligibility to the tax exemption capital gains regime, as main residence, of a real estate rendered unusual following a natural disaster.