12 Mar Tax newsletter february 2021
I. CORPORATE TAXATION
• Intangibility of the balance sheet: excessive depreciation can benefit from the “right to forget” – Decision of the 9th and 10th chambers of the French Administrative Supreme Court (“CE”) on December 29th, 2020, No. 429625, Sté MJ France
The CE states that the right to forget applies to the correction of depreciation (due to the initial overvaluation of the depreciable asset) contrary to the French tax Authorities’ (“FTA”) guidelines which limits the right to forget to depreciation booked more than ten years ago (BOI-BIC-BASE-40-20-20-10 No. 60). This decision should be applicable to real estate transactions in which the purchaser splits the total price between the land (non-depreciable) and the buildings (depreciable).
• Deduction of expenses: option premiums must be deducted the year in which the contract is concluded – Decision of the French Administrative Court of Appeal (“CAA”) of Versailles on January 26th, 2021, No. 19VE04194
Contrary to the FTA’s guidelines which consider that “the premium paid by the purchaser to the option seller remains without impact on the taxable income of the operators at the time of the conclusion of the contract” (BOI-BIC-PDSTK-10-20-70-50 No. 40), the CAA of Versailles considers that these premiums must be deducted the year in which the contract is concluded.
• French tax consolidation: the different mechanisms for deducting tax losses can be combined – Decision of the CAA of Versailles on February 11th, 2021, No. 18VE02536, Sté Direct Energie
Companies of a consolidated tax group, set up at the time of a reorganization of the parent company’s previous tax group, can benefit from the different mechanisms for deducting tax losses (i.e. the mechanism of allocation of own tax losses generated prior to the setting up of a new group, the mechanism of tax losses allocation on an extended basis and the mechanism of allocation of the group’s tax losses).
II. TAX AUDIT
• Joint and several liability of directors: illustration of the condition relating to the existence of a prejudice suffered by the FTA – Decision of the commercial chamber of the French Civil Supreme Court on January 13th, 2021, No. 19-14.749 and No. 18-25.317
The existence of a prejudice for the FTA (characterised by the impossibility to recover the debts in question from the company’s assets) is demonstrated when the FTA have issued two tax collection notices notified to the company, when a collective proceeding has been closed for lack of assets and when the director has been assigned within six months following the characterisation of the insolvency of the company.
• Claim period: the CE confirms that the starting point of the special claim period is only constituted by the tax reassessment notice – Decision of the 3rd and 8th chambers of the CE on January 26th, 2021, No. 437802, Sté Accor
The taxpayer who has been subject to a tax reassessment benefits, to submit his own claims, from a period of time equal to that set for the FTA. With respect to corporate income tax, this time limit expires on December 31th of the third year following the year in which the tax reassessment notice was duly notified to him.
• Automatic taxation: insufficient explanations may justify an automatic taxation without formal notice – Decision of the 9th and 10th chambers of the CE on February 3rd, 2021, No. 430852
A taxpayer who only provides imprecise or uncheckable answers to a request for explanations, without providing any evidence, may be subject to the procedure of automatic taxation without prior formal notice.
III. INTERNATIONAL TAXATION
• Franco-Saudi double tax treaty: a taxpayer who cannot demonstrate that he is liable to tax in the kingdom of Saudi Arabia cannot rely on the double tax treaty – Decision of the 1st chamber of the CAA of Nantes on January 14th, 2021, No. 19NT00731
The Franco-Saudi double tax treaty – which provides that the term “resident of Contracting State” means a person liable to tax in that State – is not applicable when the taxpayer is unable to demonstrate that he has been liable to tax in the Kingdom of Saudi Arabia.
• Country By Country Reporting (“CBCR”): the list of States participating with France in the country by country reporting is updated – Ministerial ruling No. ECOE2100179A on February 3rd, 2021
The list of States in which multinational companies with a consolidated turnover of 750 million euros or more are exempted from filing a “CBCR” declaration is now composed also of Anguilla, the Kingdom of Saudi Arabia, Belize, the United Arab Emirates, Hong Kong, Mauritius, the British Virgin Islands, Kazakhstan, Panama and Saint-Martin.
IV. INDIVIDUAL TAXATION
• Falciani case: the French Civil Supreme Court rules that the FTA legitimately received the HSBC list – Decision of the commercial chamber of the French Civil Supreme Court on December 16th, 2020, No. 18-16.801
The judges of the commercial chamber consider that the HSBC list was given to the FTA following the complaint lodged by the HSBC bank, which led to the seizure of the copied documents, thus “erasing” the criminal origin of the documents stolen by Mr. Falciani from the HSBC bank.
• Trust: the beneficiary of a trust may only be liable to the sui generis levy if he is deemed to be a settlor – Decision of the 3rd and 8th chambers of the CE on December 22th, 2020, No. 442320, Sté Sequent
The CE confirms the FTA’s guidelines limiting the scope of Section 990 J of the French Tax Code (“FTC”) and considers that the beneficiaries of a trust are only legally liable to the sui generis levy – which replaces the French real estate wealth tax in the absence of a regular declaration in this respect – when they are deemed to be the settlor of the trust, pursuant to Section 792-0 bis, II-3 of the FTC.
• Inheritance tax: withdrawals made from the deceased’s account are subject to inheritance tax if the FTA demonstrate that the sums were kept by the deceased – Decision of the Court of Appeal of Rennes on January 19th, 2021, No. 19/00431
The FTA are entitled to tax the sum of EUR 10,000 – withdrawn from the taxpayer’s bank account 11 days before his death – to inheritance tax when the extent of the withdrawal, the hospitalisation of the deceased prior to his death and the absence of use of the funds lead them to consider that the money was kept by the deceased until his death.