TAX NEWSLETTER July and August 2021

TAX NEWSLETTER July and August 2021

I. CORPORATE TAXATION

Transfer of tax losses: the condition of no significant change in the activity is clarified – Decision of the French Administrative Supreme Court (“CE”) on May 5th, 2021, No. 442629, Sté Catrybayart

The condition of no significant change in the activity giving rise to the tax losses for which transfer is requested does not only apply in presence of tax optimization schemes or when the transaction lacks of economic reality, nor can it be assessed overall for all the absorbed companies.

Tax losses carried back: the first amended finance bill for 2021 establishes a temporary and exceptional rule – Law No. 2021-953 on July 19th, 2021, Section 1, published in the Official Journal (“JO”) on July 20th, 2021 and Release on the impots.gouv.fr website dated August 5th, 2021
The first amended finance bill for 2021 allows companies, exceptionally, to carry back their tax losses until September 30th, 2021 (which is the deadline for the filing of the Corporate Income Tax (“CIT”) return for companies closing their fiscal year on June 30th, 2021), and, at the latest, before the payment of the CIT of the fiscal year following the one in which the decision to carry back losses is made. The French Tax Authorities’ (“FTA”) comments are published on the impots.gouv.fr website.

French tax consolidation: the FTA publish their comments about the new rules on tax losses offsetted on an extended basis – Update of the FTA guidelines (BOFIP) on August 12th, 2021 – BOI-IS-GPE-30-10; BOI-IS-GPE-50-10-30 and following; BOI-SJ-AGR-20-30-10-20 and following

The FTA comments related to the opportunity to offset tax losses on an extended basis, and tax losses and financial expenses’ transfers under ruling in the context of tax groups’ reorganization are published since August 11th, 2021 (BOI-IS-GPE-30-10; BOI-IS-GPE-50-10-30 and following; BOI-SJ-AGR-20-30- 10-20 and following).

 

II. TAX AUDIT

Personal tax audit (“ESFP”): the ESFP following a company’s tax audit may concern the shareholder current account – Decision of the CE on June 4th, 2021, No. 430897
The CE judges that the distinction between tax audit proceedings against a company and its shareholders does not, in itself, prevent the FTA from using, in the context of a shareholder’s ESFP, information obtained in the course of the company’s tax audit.

Tax audit: a Priority Question of Constitutionality (“QPC”) concerning the fine for false invoices is transmitted to the French Constitutional Court (“CC”) – Decision QPC of the CE on July 19th, 2021, No. 453359
The CE questions the CC about the conformity of Section 1737, I-1 of the French Tax Code (“FTC”) – which provides for a fine of 50% of the sums paid or received by the taxpayer in case of false invoices – with the Constitution and, more particularly, with the principles of necessity, proportionality and non- cumulation of penalties, as well as with the right to property and the presumption of innocence.

 

III. INTERNATIONAL TAXATION

Tax residence: the criterion of permanent household is clarified – Decision of the Administrative Court of Appeal (“CAA”) of Paris on May 25th, 2021, No. 19PA03307
A taxpayer who has in France an apartment – full-time used by his mate and their children and whose interphone mentions both names – where he stays regularly, considering the activation of the relay antennas by his phone on French territory, must be considered as having in France a permanent household.

Covid-19 and cross borders workers: the enforcement of mutual agreements with respect to teleworking is postponed to the end of September 2021 – Update of the impot.gouv.fr website on June 23rd, 2021
Agreements between France and Germany, Belgium, Switzerland, Italy and Luxembourg concerning teleworking days because of the pandemic will be in force until September 31st, 2021.

DAC 6 Directive: the Court of Justice of the European Union (“CJUE”) will have to appreciate the directive – Decision of the CE on June 25th, 2021, No. 448486, Conseil National des Barreaux et autres
The CE refers to the CJUE the question of whether Section 8 bis ter, 5 of Directive 2011/16 (so called “DAC 6”) complies with, on the one hand, the right to a fair trial and, on the other hand, the rights to respect for correspondence and privacy. The CE cancels some of the comments made by the FTA on filing deadlines (BOI-CF-CPF-30-40-10-20, n°180, alinea 3 to 7).

Tax transparency: the G20 agrees with an international taxation of multinationals – Press release on July 10th, 2021
Finance ministries and central banks governors of the G-20 approved the worldwide agreement on CIT reform from 2023, which must be finalized by October 2021.

France and Switzerland tax treaty: the CE clarifies the tax treatment of gains realized on exercise of stock options not defined by the treaty – Decision of the CE on July 16th, 2021, No. 448500

The CE considers that, pursuant to Section 3, paragraph 2 of the France-Switzerland tax treaty, terms not expressly defined in the treaty must have, as a matter of priority, the meaning given to them by domestic law, determined with respect to the taxpayer’s residence at the time of their realization. In the case of a French taxpayer, the gains from the exercise of stock options granted to him before the transfer of his residence to Switzerland must be treated, in compliance with French law, as salaries and wages and considered as remuneration received “in respect of an employment” within the meaning of Section 17 of the said tax treaty.

 

IV. INDIVIDUAL TAXATION

Shares exchange with cash balance: the payment of a cash balance (said “soulte”) must be matched by a specific counterparty – Decision of the CAA of Versailles on June 21st, 2020, No. 19VE03178
The CAA de Versailles judges that a cash payment within the meaning of Section 150-0 B of the FTC refers to financial transfer having the characteristic of a real consideration for the exchange of shares, i.e., transfer which have been agreed upon on a binding basis in addition to the allocation of shares representing the share capital of the acquiring company, and this, independently of the possible reasons underlying the transaction.

« Management package »: the CE clarifies the tax treatment of gains consisting in warrants or options to purchase or subscribe for shares – Decisions of the Plenary Assembly of the CE on July 13th, 2021, No. 428506, 435452 et 437498
The CE considers that management package gains resulting from the allocation of warrants or stock options outside the legal framework of stock options are taxable as salaries and wages when they essentially result from the exercise of the functions of a director or employee, even if there is a risk of a total loss of his investment by the director or employee. The enforcement of this case law must be determined on a case-by-case basis and may require a spontaneous regularization of certain situations.