TAX NEWSLETTER November 2021

TAX NEWSLETTER November 2021


Real estate trader (“marchand de biens”): a building resold six years after its purchase may be considered as a real estate trader transaction – Decision of the Administrative Court of Appeal (“CAA”) of Nantes on October 21st, 2021, No. 20NT00957

The CAA of Nantes considers that a taxpayer, who does not contest having a real estate trader activity, who purchases a real estate property for an amount of €38,000 in 2007 and resells it in 2013 for an amount of €290,000, must be considered as proceeding to a speculative transaction exercised within the framework of a real estate trader activity.

Professional capital gains: the foreign tax due on the sale of participations can be deducted from the French tax due on the 5% portion of costs and expenses – Decision of the 3rd and 8th chambers of the French Administrative Supreme Court (“CE”) on November 15th, 2021, No. 454105, Sté Air Liquide

The CE considers that in the event of a capital gain on the sale of foreign participations, the taxation on the 5% portion of costs and expenses corresponds to an amount of French tax on which a foreign tax credit may be offset. The CE thus invalidates the French Tax Authorities’ guidelines.



Indirect gift and life insurance: no 40% surcharge for the beneficiary of a life insurance policy requalified as an indirect gift – Decision of the Court of Appeal (“CA”) of Versailles on October 12th, 2021, No. 20/03376

The CA of Versailles ruled that a life insurance policy whose liberal intent is characterised by the size of the premiums paid and the age of the subscriber (101 years old), justifies the requalification as an indirect gift. However, the 40% surcharge for intentional failure to comply with the law does not apply insofar as the intention of the beneficiaries of the life insurance policy to avoid paying gift tax is not characterized. This is the case when it is not established with certainty that the beneficiaries were aware of their beneficiaries’ status before the death of the subscriber.

Withholding Tax (“WHT”): contestation before the tax judge by the beneficiary of the income or by the debtor – Decision of the 3rd and 8th chambers of the CE on October 15th, 2021, No. 453022, min. c/Sté Paloma

The CE states that both the person responsible for paying the WHT provided for in Section 182 B of the French Tax Code (“FTC”) and the beneficiary of the income are entitled to contest this WHT before the tax judge.

Fine for convenience invoices: the French Constitutional Court (“CC”) rules that the fine is in line with the French Constitution – Decision of the CC on October 21st, 2021, No. 2021-942 QPC

The fine provided for in Section 1737, I-1 of the FTC, equal to 50% of the amount of the sums paid or received, which applies to persons who have disguised or concealed the identity or address of their suppliers or customers, or certain mandatory identification elements, or who have knowingly accepted the use of a fictitious identity or a nominee, is in line with the French Constitution.



Covid-19: extension of the agreements concerning cross-border workers until the end of December – Press release of the Ministry of the Economy, Finance and the Recovery on September 29th, 2021, No. 1455

The mutual agreements on the taxation of border and cross-border workers, concluded with Germany, Belgium, Italy, Luxembourg and Switzerland in the context of the measures to prevent the spread of Covid-19, will continue to apply until December 31st, 2021.

Transfer pricing: the functional position within a group may justify a lower operating profit – Decision of the 3rd and 8th chambers of the CE on October 4th, 2021, No. 443133

The CE points out that the difference noted by the FTA between the prices charged – with affiliated companies and with third parties – cannot constitute, for the French company, an advantage without consideration if it is justified by the risks that the latter has to assume and that affect its profitability.

France/Belgium tax treaty: signing of a new tax treaty – Press release of the Ministry of Economy, Finance and the Recovery on November 9th, 2021, No. 1631

France and Belgium signed a new tax treaty on income tax on November 9th, 2021, which provides for a new definition of tax residence and allows the two States to preserve their right to tax capital gains on real estate located in their State or in the event of a substantial participation in one of their companies.



Contribution of usufruct to a legal entity: contributing a life usufruct to a company for 30 years does not make it a temporary usufruct – Decision of the CAA of Paris on October 5th, 2021, No. 20PA01257

The CAA of Paris reverses the FTA’s guidelines and considers that when a natural person intends to sell a life usufruct to a legal entity, this transfer, when it is granted for a period of 30 years, must not be considered as a temporary usufruct falling within the scope of Section 13, 5 of the FTC (providing for income tax on the first sale of a temporary usufruct).

Real estate capital gains: no exemption for the seller of a secondary residence who has held the usufruct of his main residence during the 4 years preceding the sale – Decision of the CE on October 12th, 2021, No. 454641 QPC

For the CE, the condition provided for in Section 150 U II, 1°bis of the FTC according to which the seller must not have owned his main residence, directly or through an intermediary, during the 4 years preceding the sale, must be understood as encouraging the investment in the acquisition of a main residence, reserving this benefit to taxpayers who do not hold any real estate right on their main residence.

Income from movable property: a contribution at a higher price does not conceal a hidden distribution – Decision of the 3rd and 8th chambers of the CE on October 20th, 2021, No. 445685

A contribution at a deliberately increased price does not, by itself, imply any impoverishment of the beneficiary company in favour of the contributor. Consequently, the contributor cannot be considered as benefitting from a hidden distribution which would be taxable in his name.