Litigation

Certain results obtained in litigation

Landmark decisions

Alitalia (CE Ass 3 February 1989)

First repeal of a French tax regulation for lack of conformity with an EU directive. Acknowledgement of a general principle of law. First positive application of EU directives regarding VAT in France

Roval (Cass AP 21 December 1990)

Non-discrimination clauses in tax treaties reduce the scope of the 3% annual tax on the fair market value of real estate held by foreign entities: one of the rare decisions of the Assemblée Plenière regarding tax matters, and, until recently, the only one regarding international taxation. The distinction and identification of situations is assessed considering the taxable event

Satam (CJCE 22 June 1993)

Dividends and the right to deduct input VAT (first referral for a preliminary ruling of the French Council of State to the CJCE relating to tax matters)

Major cases with successive steps

Additional contribution to corporate tax of 3% on distributed amounts

Referral to the French constitutional court on the 3% corporation tax surcharge on distributed profits

Demonstration of the incompatibility with the law of the European Union and international treaties regarding double taxation - Situation of related proceedings conducted simultaneously in Belgium and in France

Exemption of the CSG and CRDS social security contributions on professional income from foreign sources

CJUE 3 April 2008 C-103/06 Derouin / URSSAF and subsequent rulings of the CA Paris of 6 November 2008 and 26 March 2009 and the C. Const of 13 December 2012 No. 2012-659 DC pt 15

The “turbo funds” case

Application of French tax regulations and barrings of the “abus de droit” (CE Ass 8 April 1998 regarding prejudicial questions of the CA Paris of 1 July 1997). Strict liability of financial intermediaries of mutual investment funds regarding their performance obligations (Cass 1 December 1998, CA Paris 29 March 2000, Cass 24 September 2002, CA Versailles 14 December 2004 as well as past decisions)

Increased capital duty on corporate mergers and capital increases through the incorporation of reserves

Many favorable rulings and judgments. Solution confirmed by the CJCE 13 February 1996 Bautiaa, which led to the elimination of this tax

Other major precedents

US foreign tax credit for French CSG and CRDS

Pursuant to an official interpretation by the Department of State in a long-standing case before the US Tax court, the IRS no longer asserts that US income taxpayers living in France are precluded from claiming the foreign tax credits in relation to the French CSG and CRDS, thus withdrawing a position originally posted in 2008 on the website of the US embassy in France and followed by broad audit campaign. This solution is in line with the expert report on French law filed in the interest of the taxpayers. US Tax court n°8055-12 ESHEL / Commisioner of Internal revenue (USA)

Tax credits on foreign income

Computation of tax credits on foreign income “equal to French tax”: Review of the CE rulings of 26 July 2011 Türckheim et Saucé (DF 2011 c. 558) and filing of a complaint to the European Commission; formal notice from the European Commission to the French Government on 16 October 2014; alignment of the administrative guidelines (Bofip December 2014 / July 2015) ; Judgment of the administrative court of appeals of Paris 7 April 2016 n°12PA04303 ; Reasoned opinion from the European Commission on the « loss » of foreign tax credits where a French individual resident taxpayer is in deficit for the fiscal year when he/she received the foreign source income that has borne a withholding tax in the source country, 13^th July 2017.

Golovan / Ukraine (ECHR of 5 July 2012)

Intervention of the International Association of lawyers in support of the appeal of a Ukrainian lawyer to a search of his firm’s premises. Demand for specific legislative guarantees (first step in this direction).

Sudfer (CE of 29 December 1995)

Exclusion from the VAT regime of income from investments performed by a taxable person not acting as such or outside of the scope of VAT. Reversal of preceding case law

Chase Manhattan Bank VAT (Monaco 3 October 1995)

Territorial scope of VAT deductions applicable to a U.S. bank with a subsidiary in France and another subsidiary in Monaco – Confirmation of the solutions obtained at first instance and on appeal (Monaco Court of Appeal 21 June 1994)

Pantanella (CE 21 October 1981) / Cibaud (CE Plénière fiscal of 29 July 1983)

Tax discharge whenever the administrative approach to the rectification of tax bases is excessively brief or hypothetical
Many subsequent rulings of the CE and the CAA

Other precedents

Capital gain on the sale of shares of a French company predominantly invested in real estate by a foreign investor

The repayment by the purchaser of the debt obligation of current account held by the transferor on the transferred company does not form part of the capital gain on the sale of shares (CAA Versailles 3rd March 2020, n° 19VE00113, Company Croë Switzerland)

Permanent establishment and real estate capital gain

No permanent establishment in France of the real estate investment fund CEREP during the purchase, renovation and sale of the building Imprimerie Nationale in Paris (Cour Administrative d’Appel de Paris 14 décembre 2017, n°15PA02628, Cerep Imprimerie).

Transfer pricing cases

Proof contrary to the presumptions of Article 238 A of the CGI report

No abuse of law in a structured investment through a French share saving scheme

Pursuant to Conseil d’Etat rulings 418452 and 429393 of June 19, 2020, with opinion of public reporter Anne Iljic, the administrative court of appeals of Paris confirms that the tax benefits attached to a French share saving plan apply to the gains realized upon the sales of shares in private holding companies acquired through such a plan. The court recognized the rationale of such holdings and dismissed the tax authorities’ challenge of the share valuation (administrative court of appeals of Paris, July 20, 2022, 20PA01532 and January 25, 2023, 19PA01230, Kemoun)

No French withholding tax on payments from French sources for services provided by a “totally exporting” Tunisian company

In line with previous court rulings, especially from the Conseil d’Etat, the administrative court of first instance of Paris confirms that a so-called “totally exporting” company is entitled to the benefits of the double taxation treaty between France and Tunisia. As a result, the French withholding tax of 1/3 does not apply to the compensation of services provided to a French business by such entity (administrative court of first instance of Paris, January 17, 2023, 19-11926/1-2, NR-Coms)

General anti-avoidance rules

No abuse of law where a scheme generates no corresponding tax saving

No act of mismanagement where the challenged payment is an integral part of an overall arrangement

Important (and public) cases in progress

Tax allowance for holding period on capital gains realized by individuals upon the sale of shares and previously placed on tax deferral

After the ruling C-662/18 and 672/18 of the CJUE on 18th September 2019 and the decision on the 3rd April 2020 of the Conseil Constitutionnel n°2019-832/833 QPC, the debate before the tax judge is moving towards the interpretation of the law (article 150-0 D of the French general tax code) in the light of the European Merger directives on the common system of taxation of mergers and similar transactions (concluding pleas before the administrative court of Paris, 12 June 2020).