I.1. Corporate Income Tax (« CIT »)

• Decrease and increase of the equity: impact of an equity reduction on the purchase price of the shares – Decision of the French Administrative Supreme Court (“CE”) on November 28th, 2018, No. 417875

The CE considers that according to Sections 150-0 A and 150-0 D of the French tax code the capital gain resulting from a transfer of shares is equal to the difference between the transfer price of these shares and their acquisition price. If the transferred shares were acquired by the taxpayer at the time of an equity increase of the issuing company following a reduction of the same equity by cancellation of shares, the sums paid for the acquisition of those cancelled shares must be excluded for determining the acquisition price.

• Shareholders’ current accounts: the maximum deductible interest rate for shareholders’ current accounts for companies closing their fiscal year on December 31th, 2018 is 1.47% – Official Journal of 27th December, 2018.

I.2. Value Added Taxation (“VAT”)

• No invoice: the right to deduct is not called into question if the substantive conditions are met – Decision of the European Court of Justice (“ECJ”) on November 21th, 2018, case No. 664/16, Lucretiu Hadrian Vadan

Failure to provide an invoice for the purchase of goods and services, which is not a formal requirement of the deduction’s right, cannot prevent the deduction of VAT if the taxpayer demonstrate, by objective evidence, that the substantive conditions for exercising that right are met.

• Branch: zero-rating of expenses incurred for its foreign headquarters – Decision of the ECJ on January 24th, 2019, case No. 165/17, Morgan Stanley & Co International plc

The ECJ clarifies that the deductible proportion of a branch expenses must be computed differently for mixed expenses incurred by the branch to carry out taxed and exempt transactions, depending on whether they are expenses allocated exclusively to transactions carried out by its head office or overheads contributing to both its own transactions and those carried out by its head office.


• Client-Lawyer communications: obligation to lift professional secrecy – Decision of the CE on December 12th, 2018, No. 414088

The French Tax Authorities (“FTA”) may only use correspondence between a lawyer and a taxpayer if the latter agrees to the lifting of professional secrecy. Otherwise, the procedure would be irregular.

• Abuse of law: the literal application of a FTA’ guideline can be an abuse of law – Decision of the Paris Administrative Court of Appeal (“ACA”) on December 20th, 2018, No. 17PA00747

The Paris ACA considers that, through a company “devoid of economic substance”, the arrangement put in place was artificial and that the taxpayer was looking for the benefit of the literal application of Guideline 5 C-1-07 with the sole purpose of avoiding the payment of capital gains tax. This decision contradicts the decision of the EC (on April 8th, 1998 No 192539) and the opinions of the Abuse of Law Committee on November 6th, 2015 (No 2015-07 to 2015-09).

• Long-term capital gains: no reduced tax rate in the event of a sale at a lower price – Decision of the CE on December 26th, 2018, No. 424570

The EC considers that in the event of a sale at a reduced price, the price deficiency cannot benefit from the reduced tax rate because it is “a gift similar to a distribution of share capital, the additional profit thus identified is taxable in the hands of the company under ordinary law conditions”.

• Long-term capital gains: no reduced tax rate if the tax loss offset against the capital gains is subsequently challenged – Decision of the CE on December 28th, 2018, No. 406709

During a tax audit, the company’s tax losses, against which it had offset a long-term capital gain, are reassessed. Once the tax losses are cancelled, the company asks for the benefit of the reduced tax rate applicable to long-term capital gains, which the FTA refuse. The CE confirmed FTA’ position considering that “by choosing to offset the capital gain in dispute against the declared tax losses, the company had taken a management decision which was enforceable against it and which prohibited it from subsequently claiming the benefit of taxation at the reduced rate of capital gain”.

• Statute of limitation: a decision of the Constitutional Council (“CC”) does not reopen the time limit – Opinion of the CE on January 11th, 2019, No. 424819

The EC considers that a decision of the CC does not constitute an event likely to reopen a new time limit period because, unless otherwise specified, it does not have a direct impact on the very principle of taxation, its regime or its method of computation.


• Limitation of Real Estate Wealth Tax (“IFI”): the taking into account of the capital gains’ gross amount is constitutional – Decision of the CC on January 15th, 2019, No. 2018-755

The CC considers that taking into account the gross capital gains realized by the taxpayer, without taking into account the monetary erosion between the date of acquisition of the goods or rights and that of their transfer, does not ignore the requirement to take into account the contributive faculties resulting from Section 13 of the 1789 Declaration of Human and Citizens’ Rights.

• Foreign real estate loss: deductibility for the computation of the real estate income – Decision of the Lyon ACA on January 8th, 2019, No. 17LY02151

The Lyon ACA considers that a taxpayer whose tax domicile is in France may offset foreign source real estate losses because provisions of the Franco-German tax treaty do not object to it.

• Abuse of rights and dismemberment: impact of the new definition of Section L 64 A of the Tax Procedures Code – Press release on January 19th, 2019

The new definition of abuse of law does not affect advance transfers of assets, in particular those for which the donor reserves the usufruct of the property transferred, provided of course that the transfers concerned are not fictitious.