16 Oct TAX NEWSLETTER September 2020
I. CORPORATE TAXATION
• Professional capital gain: provisions of Section 210 F of the French Tax Code (“FTC”) are not in line with the French Constitution – Decision of the French Constitutional Council (“CC”) on July 31st, 2020, No. 2020-854 QPC
The CC considers unconstitutional the provisions of Section 210 F of the FTC which excluded from the reduced tax regime the capital gains generated by the sale of business premises – intended to be transformed into housing – to a French civil company of construction-sale (“Société civile de construction- vente”).
• Valuation of assets: a tax-neutral reevaluation of tangible and financial fixed assets is considered – Finance Bill for 2021 on September 27th, 2020, Section 5
Companies should be temporarily allowed to carry out a tax-neutral free reevaluation of all their tangible and financial fixed assets. These provisions would apply to the first reevaluation recorded at the end of a fiscal year ending on or after December 31st, 2020 until December 31st, 2022.
• VAT: an optional VAT group regime is considered – Finance Bill for 2021 on September 27th, 2020, Section 45
An optional group regime would be created for VAT purposes between taxpayers established in France with financial, economic and organizational relations between them. These provisions would be applicable as from January 1st, 2023. The election for this regime should be performed before October 31st, 2022.
II. TAX AUDIT
• Safeguards for parent companies of a consolidated tax group: assertion of the safeguards applicable to parent companies of consolidated tax group in the event of penalties applied following the tax audit of subsidiaries – Decision of the French Administrative Supreme Court (“CE”) on June 25th, 2020, No. 421095 and 421096 min. c/ Sté BNP Paribas
By two decisions dated June 25th, 2020, the CE confirmed that the French Tax Authorities (“FTA”) failed to comply with the safeguards granted to the parent company when the financial consequences of the tax audit on the consolidated tax group’ income, including in particular the penalties claimed from the parent company, are not communicated to the parent company before the FTA collect taxes.
III. INTERNATIONAL TAXATION
• Real estate capital gains: the conversion of foreign currencies into euro must be performed on the acquisition price and on the sale price – Decision of the French Administrative Court of Appeal (“CAA”) of Marseille on February 4th, 2020, No. 18MA04333
The CAA considers that regarding provisions of Sections 150 U and 150 UV of the FTC the exchange gain or loss relating to the sale of a real estate property is a component of the capital gain generated and must be taken into account for the computation of the gross capital gain. Accordingly, the acquisition and sale prices must be converted into euro on their respective dates.
• Trusts: the provisions of Section 123 bis of the FTC are not applicable to discretionary and irrevocable trusts – Decision of the CAA of Paris on June 24th, 2020, No. 19PA00458
The CAA of Paris judges that the beneficiary of a discretionary and irrevocable trust cannot be considered as holding financial rights in a trust. Moreover, a trust set up in the context of a reorganization whose main purpose is to protect the family assets cannot be regarded as constituting an artificial scheme to avoid French law. Consequently, the taxpayer cannot be subject to the taxation provided for by Section123 bis of the FTC.
III. INDIVIDUAL TAXATION
• Capital gains of individuals: prior losses generated on securities are not deductible if the seller is no longer a member of the tax household – Decision of the CAA of Marseille on July 22th, 2020, No. 18MA04141
The CAA of Marseille considers that it results from the provisions of Section 150-0 D of the FTC combined with the rule of taxation by tax household that only the losses incurred by the taxpayer personally or by one of the members composing the tax household in the year in which the capital loss is allocated are deductible.
• “Dutreil transmission” and Family Buy Out (“FBO”): a ministerial answer confirms the possibility for each beneficiary to transfer the securities received to his own holding company – Ministerial Answer Patriat, Official Journal of the Senate on September 3rd, 2020, No. 6410
The Dutreil exemption is maintained when, in the context of a FBO, each beneficiary child transfers his securities to his own holding company before the end of their holding commitments, provided that each of the contributors and each of the companies benefiting from the contributions, taken individually, complies with all the conditions set forth in Section 787 B, f of the FTC.
• Capital gains of individuals: the tax refund may be claimed in case of resolution of a sale of shares – Decision of the 3rd and 8th chambers of the CE on September 9th, 2020, No. 433821
The CE ruled that in the event of resolution of the sale – after the year in which the shares were sold – the taxpayer may obtain a refund of the capital gains tax initially paid in accordance with the FTA’ guidelines (BOI-RPPM-PVBMI-30-10-10, No. 70). This is an exception to the position according to which a taxpayer who reports an income and pays a tax without applying the FTA’ guidelines cannot then rely on it a posteriori in the course of a litigation.
• Capital gains of individuals: the date of acquisition to be retained in the case of a real estate property acquired by “licitation” is the date of entry into joint ownership – Decision of the 3rd and 8th chambers of the CE on September 9th, 2020, No. 436712
The CE states that, in the case of the resale of a real estate property in which a fraction of the undivided rights was acquired by “licitation”, the date of acquisition of these rights is the date of the opening of the succession that gave rise to the joint ownership and not the date of the ”licitation”, even though the taxpayer is not a primary member of the joint ownership of the estate but one of its heirs.