16 Sep TAX NEWSLETTER July and August 2020
I. CORPORATE TAXATION
• Deduction of a foreign subsidiary’s losses: no deduction allowed if the losses are not definitive – Decision of the French Administrative Court of Appeal (“CAA”) of Versailles on June 23rd, 2020, No.19VE01012, Lucien Barrière Group
The Versailles CAA considers that in order to be entitled to offset losses suffered by a foreign subsidiary against the overall results of a French consolidated tax group, the parent company must provide evidence of the definitive nature of these losses.
• Tax consolidation: the exchange ratio of an intragroup contribution of securities based on the book value may entail a subsidy – Decision of the 9th and 10th chambers of the French Administrative Supreme Court (“CE”) on July 1st, 2020, No. 418378, Lafarge Company SA
The CE considers that, in a consolidated tax group, when a company contributes equity securities to another member company, the positive difference between the fair market value of the securities contributed and that of the securities received in return constitutes a subsidy from the first company to the second one. This subsidy must be reported according to Sections 223 B and 223 Q of the French Tax Code (‘FTC”).
• Tax collection: tax debts arising during the health crisis may be settled – Decree No. 2020-987 on August 6th, 2020, Ministerial Order No. ECOE2021394A on August 7th, 2020, Ministerial Release on August 17th, 2020 and Update on www.impots.gouv.fr website
Very small companies and small and medium-sized companies facing difficulties in paying their tax debts may request from the French Tax Authorities (“FTA”), before December 31st, 2020, for a payment plan for all default between March 1st and May 31st, 2020.
II. TAX AUDIT
• Deemed distributed income and distributions not derived from profits: the presumption of collection by the business master is irrefutable – Decisions of the 3rd and 8th chambers of the CE on June 29th, 2020, No. 432815 and 433827
The CE rules that when the qualification of business master is retained with respect to a person, that person is regarded as having collected the deemed distributed sums, without being able to challenge this presumption.
II. INTERNATIONAL TAXATION
• Securities held by a Trust: exemption from social contribution on Corporate Income Tax (“CIT”) – Decision of the 9th and 10th chambers of the CE on March 20th, 2020, No. 410930, SAS Ponthieu Rabelais
The CE considers that the exemption from social security contributions on CIT provided for in Section 235 ter ZC of the FTC, reserved for companies held on an ongoing basis, at least at 75%, by individuals or by companies (directly held, in the same proportion, by individuals), may benefit to securities held through a trust, as it corresponds to a set of legal relationships without legal personality.
• American partnership: treatment of capital gains realized by a France tax resident – Decision of the Nancy CAA on April 8th, 2020, No. 18NC00754
The Nancy CAA considers that the gain resulting from the sale of shares representing 25% of the equity in an American partnership is only taxable in France, even if it is of a professional nature, and cannot give rise to a tax credit in France.
• France and China tax Treaty: in the absence of taxation, the Treaty is not applicable – Decision of the 3rd and 8th chambers of the CE on June 9th, 2020, No. 434972
The CE considers that the status of resident of a contracting state, which is an indispensable prerequisite for the application of the Treaty, is subject to the sole condition that the taxpayer is liable to tax in that State because of his domicile, residence or similar personal connection, and does not depend on the extent of his tax liability in that State.
• Preferred tax regime: the concept is clarified – Decision of the 3rd and 8th chambers of the CE on June 29th, 2020, No. 433937, Bernys
The CE considers that the mere absence of a corporate income tax in a State is not sufficient to consider it is a State with a privileged tax regime insofar as this qualification is determined based on all the direct taxations on profits and income provided for by the local legislation of that State.
• France and Brazil tax Treaty: the criteria for the habitual place of residence is clarified – Decision of the 3rd and 9th chambers of the CE on July 16th, 2020, No. 436570
The CE considers that, under Section 4 paragraph 2 of the Franco-Brazilian tax Treaty, the habitual residence in France or Brazil is assessed based on the frequency, duration and regularity of the respective stays in these States, which are part of the person’s normal lifestyle and which are not simple transitions, without any need to determine whether the total duration of these stays exceeds half a year.
• Country-by-country reporting: the list is updated – Ministerial Order No. ECOE2013143A dated July 20th, 2020
The list of States participating in the automatic exchange of country-by-country declarations with France has been enlarged by Andorra, Colombia, Curaçao, the Cayman Islands, Monaco, Nigeria, Pakistan, Peru, Qatar, Switzerland and the United Kingdom. Israel has been withdrawn.
IV. INDIVIDUAL TAXATION
• Shares in Stock Subscription Bonds (“ABSA”): ABSAs awarded to an executive may be a financial investment – Decision of the CAA of Paris on February 11th, 2020, No. 18PAO3132
The Paris CAA considers that ABSAs may constitute a financial investment when the gain realized by the executive results in a capital risk that exposes him/her to a potential loss.
• Real estate income: interest on a loan taken out by a real estate company (“SCI”) to repay an associate of its shares is deductible – Decisions of the 3rd and 8th Chambers of the CE on June 9th, 2020, No. 426339 and No. 426343
The CE considers that, when it is established that a loan taken out by a SCI (whose results are taxable under the real estate regime) in order to reimburse the shares of one of its partners is necessary to preserve the SCI’s income, interest paid on this loan is deductible from the gross real estate income.
• PEA and abuse of law: sale of a holding company’s securities – Decisions of the 9th and 10th chambers of the CE on June 19th, 2020, No. 418452 and 429393
The CE considers that the absence of a demonstration of the necessary character of the interposition of the holding company is not sufficient to evidence an abuse of law and that the assessment of the economic interest of the transaction is not limited to the substance of the holding company.