26 Nov TAX NEWSLETTER October 2019
I. CORPORATE TAXATION
• Dividends paid to a company domiciled in a non-European Union (“UE”) country: withholding tax is compliant with UE law – Decision of the French Administrative Supreme Court (“CE”) on September 30th, 2019, n°418080
Withholding tax levied on dividends paid to a company tax resident in a non-UE country falls within the scope of the standstill clause allowing restrictions on the free movement of capital, provided that it relates to a direct investment.
• Partial contribution of assets: solidarity between contributing and recipient companies for the tax due before the contribution – Decision of the CE on October 9th, 2019, n°414122, Sté Printemps
In the event of a partial contribution of assets under the demerger regime (Sections L. 236-16 to L. 236-21 of the French Commercial Code), the contributing company remains jointly and severally liable with the recipient company for the payment of the debts transferred to the latter. They shall become jointly and severally liable of the taxes relating to the branch of activity concerned, the operative event of which predates the contribution.
II. TAX AUDIT
• Right to error: no automatic taxation of a hidden activity without prior formal notice – Decision of the Administrative Court of Appeal (« CAA ») of Nantes on May 16th, 2019, n°17NT03254
Should the absence of filing a tax return constitutes a simple error by the taxpayer, the French Tax Authorities (“FTA”) cannot consider the activity as occult and must, in order to tax ex officio, give prior notice to the taxpayer to file a tax return.
• Abnormal act of management: confirmation and extension of the requirement for a comparison – Decision of the CE on July 17th, 2019, n°425607, Sté Voyag’Air
The CE considers that the invoicing of services between companies linked by a community of interest, at a level that does not allow the service provider to cover its operating costs, does not in itself constitute an advantage by nature, qualifying it as an abnormal act of management. Even if this invoicing is low, the FTA should demonstrate an advantage over prices charged compared to independent companies in comparable circumstances.
III. INTERNATIONAL TAXATION
• Capital gains of individuals: capital gain on the transfer of French SCI shares subject to Corporate Income Tax (« CIT ») by a Belgian tax resident – Judgment of the Administrative Court (« TA ») of Montreuil on June 7th, 2019, n°1705505
Pursuant to Section 18 of the Franco-Belgian tax treaty on March 10th, 1964, the capital gain generated by the transfer of French SCI shares subject to CIT by a Belgium tax resident is taxable at the progressive scale of the French personal income tax and not as a real estate capital gain at the rate of 19%.
• Tax heavens: Switzerland is no longer a tax haven for the UE – Press release of the Council of the UE on October 10th, 2019
The Council decided to remove the United Arab Emirates and the Marshall Islands from the EU list of non-cooperative countries and territories. It also considered that Albania, Costa Rica, Mauritius, Serbia, and Switzerland comply with all tax cooperation commitments.
• Amendment to the Franco-Luxembourg tax treaty: procedures for eliminating double taxation have been adjusted – Amendment on October 10th, 2019
The amendment replaces the so-called real tax credit method with the notional tax credit method so that wages taxed in Luxembourg are not subject to double taxation at source.
• Reporting obligations: transposition of the DAC 6 directive of May 25th 2018 – Ordonnance n°2019-1068 on October 21st, 2019
The DAC 6 Directive which requires intermediaries and, in some cases, taxpayers themselves, to declare potentially aggressive cross-border tax planning arrangements to the tax authorities, has been implemented in France.
IV. INDIVIDUAL TAXATION
• Valuation of dismembered ownership: the CE specifies the method to be used – Decision of the CE, 9th-10th chambers, on September 30th, 2019, n° 419855, Sté Hôtel Restaurant Luccotel
According to the CE, it is appropriate to use the actualized cash flow method, to actualize the flows which are effectively distributed; the actualized rate should be the one of the internal rate of return of the after-tax investment.
• Capital gains of individuals: the manager allowance conditioned on retirement within two years of the sale – Decision of the CE on October 16th, 2019, n°417364
To benefit from the allowance on the net gains on the sale of shares or rights in European SMEs generated by managers because of their retirement, the seller must cease to hold a position in the transferred company and retire during a four-year period (from two years before the sale to two years after the sale).
• French wealth tax (« ISF »): referral to the Constitutional Council for the 30% allowance when the main residence is held by a French SCI – Priority Question of Constitutionality (« QPC ») of the French Civil Supreme Court on October 17th, 2019, n°19-14.256
The French Civil Supreme Court refers to the Constitutional Council the fact that the 30% allowance on the market value of the main residence (for the computation of the ISF) is not granted to taxpayers who hold their main residence through an SCI, as it may be contrary with the principles of equality before the law and before public authorities.
• Exceptional contribution on high income (« CEHR »): foreign income is retained for the computation of the rate – Decision of the CE, 9th-10th Chambers, on July 10th, 2019, n°412624
Although exempted from CEHR, foreign-source income is taken into account for the computation of the CEHR’s rate.