12 Jan TAX NEWSLETTER December 2019
I. CORPORATE TAXATION
• Depreciation of shares in real estate companies: the French Administrative Supreme Court (“CE”) indicates the date to retain to assess the company’s assets – Advice of the CE on November 22th, 2011, n° 432053, L’Auxiliaire company
The CE indicates that the date to retain to assess if the company is a real estate company (companies whose shares are subject to a depreciation allowance) is either (i) the closing date of the last financial year preceding the depreciation allowance, or (ii) the closing date of the financial year of the company which holds the shares.
• Parent-subsidiary regime: “Sociétés en commandite simple” (French limited partnerships) may benefit from this regime – Decision of the 9th and 10th chambers of the CE on November 27th, 2019, n° 405496, Vorwerk Elektrowerke GmbH et Co. KG
The CE considers that all companies or legal persons subject, in all or part, to corporate income tax fall within the scope of the parent-subsidiary tax regime. This is the case in particular of sociétés en commandite simple, for all their profits or, in the absence of election for the corporate income tax regime, only for the portion of their profit corresponding to the rights of limited partners and those of partners which do not have an unlimited liability.
• Tax consolidation: a group tax loss cannot be offset against of the taxable income a dissolved group which had the same parent company – Decision of the 3rd and 8th chambers of the CE on December 2nd, 2019, n° 420910, min. v. Courant SAS
The CE considers that the group tax loss of a consolidated tax group, generated for a fiscal year by its parent company, may be offset, with respect to fiscal year prior to the constitution of the tax group, only against the taxable income declared by this company, on a standalone basis.
• Interest paid between related companies: reference to the bond market – Judgement of the French Administrative Court (“TA”) of Versailles on December 6th, 2019, n°1607393 and 1806803, Wheelabrator group SAS company
The Versailles TA confirms the interest rate of an intra-group loan is in accordance with the market practice as it is based on a study carried out a posteriori and by comparison with the rates applied on the bond market.
II. TAX AUDIT
• Incorrect invoiced Value Added Tax (“VAT”) and reverse charge: the CE draws the consequences from European case law – Decision of the 9th and 10th Chambers on November 15th, 2019, n°420251, Eye Shelter company
The CE, applying European case-law (decisions of April 26th, 2017, C-564/15 Tibor Farkas, and of April 11th, 2019, C-691/17 PORR Epitesi Kft.), points out that where non-compliance with the rules of the reverse-charge system entails a risk of loss of tax revenue for the Member State concerned, the latter may, before granting the refund applied for, check that the risk for such loss has been eliminated beforehand, in particular by the fact that the person who made the incorrect invoice has paid the tax unduly collected to the Treasury.
III. INTERNATIONAL TAXATION
• Withholding tax: non-compliance with European law of the withholding tax on services paid abroad – Decision of the 3rd and 8th chambers of the CE on November 22th, 2019, n°423698
The CE considers that the provisions of Section 182 B, I-a of the French Tax Code (“FTC”) are not compliant with European law as the withholding tax is levied on a base excluding the professional expenses incurred by the foreign service provider.
• Tax treaty: the tax treaty between France and Luxembourg is published – Decree on December 2nd, 2019, n°2019-1274
The tax treaty signed between France and Luxembourg on March 20th, 2018 concerning taxes on income and wealth has been published. An amendment to this new tax treaty aimed at avoiding that the salary income of cross-border commuters is no longer heavily taxed has been signed on October 10th, 2019 but has not yet been ratified.
IV. INDIVIDUAL TAXATION
• Capital gain on movable property: the prohibition to offset the loss following a “coup d’accordéon” by reduction of equity is discriminatory – Decision of the 3rd and 8th chambers of the CE on November 22nd, 2019, n° 431867
The prohibition to offset the capital loss on securities cancelled in the event of a compulsory equity reduction to zero due to losses, whereas this offset is permitted in the event of a cancellation in the context of collective proceedings, is contrary to the European Convention on Human Rights.
• Real estate capital gain and amended tax return: the purchase price of a real estate property is understood to mean the price that may be amended – Decision of the 9th and 10th chambers of the CE on November 27th, 2019, n°418379
The acquisition price to retain for the computation of the registration duties due because of the transfer of a property acquired by inheritance or by gift is the price mentioned in the tax return made by the taxpayer or, where applicable, a reassessment of this tax return by the French tax authorities.
• Capital gain subject to deferral taxation and deduction for holding period: the CE draws the consequences of European case law and refers a Priority Constitutionality Question (“QPC”) to the Constitutional Council – Decisions of the 3rd and 8th chambers on the CE on December 19th 2019, QPC n°423118 and 423044
Following the recent decision of the European Court of Justice (decision of September 18th, 2019, cases 662/18 and 672/18), the CE has issued a QPC on the difference in treatment between taxpayers transferring securities with a capital gain subject to deferral taxation, depending on whether or not the transaction falls within the scope of the Merger Directive.