Law & Numbers - News Tax

Tax News - March 2011

04.04.2011

Companies, Individuals, Tax audit and international news.

COMPANIES

1 - LOWERING OF THE THRESHOLD FOR MANDATORY USE OF E-PROCEDURES
Starting October 1st 2011, the obligation to electronically declare and pay the VAT extends to entities the turnover (or revenues generated under the penultimate ended fiscal year) of which is superior to 230 000 before VAT (the former threshold was set at 500 000 before VAT).
The electronic payment also becomes mandatory in matters of corporate income tax and employment tax for companies exceeding this 230 000 level.

2 - FRANCE - TAX DEFERRAL AND ABUSE OF LAW
In its decision dated February 11th, 2011, the Supreme Administrative Court ruled that the tax deferral benefitting to a taxpayer for the contribution of his shares to a company he controls, immediately followed by their disposal by the latter company, does characterize an abuse of law only if the sole purpose of the scheme enables the taxpayer, by interposing a company, to receive the cash derived from the sale of these shares, while remaining holder of shares received in exchange (CE 02.11.2011, 314950).

However, should the proceeds derived from the sale of the shares be effectively reinvested into an operational activity, such a scheme does not fall within the scope of abuse of law transactions.

3 - FRANCE - LBO AND ABUSE OF LAW
In its decision dated January 27th, 2011, the French Supreme Administrative Court ruled for the first time that an LBO cannot be treated as an abuse of law according to article L64 of the French Tax Procedures Code (CE 01.27.2011 n320313, 9e et 10e s.-s, Bourdon).

To not be qualified as an abuse of law, the creation of a holding company, the sole purpose of which would be LBOs, the French Administrative Supreme Court requires there be the benefit of a lasting financial and patrimonial interest for the partners.

This decision secures LBO operations from a French tax standpoint.

INDIVIDUALS

4 - FRANCE – DISCLOSURE OBLIGATION FOR FOREIGN ACCOUNTS
In its decision rendered on December 17th 2010, the French Supreme Administrative Court states that the obligation for individuals, non-profit organizations, and non-commercial entities established in France to declare accounts they possess abroad is compatible with articles 56 and 58 of the Treaty establishing the European Community. (French Supreme Administrative Court, 17/12/2010, 330666, Published in the Lebon).

Thus this purely declarative obligation, defined at article 1649 A of the French Tax Code, and intended to insure the efficiency of the fight against tax fraud, does not wrongfully undermine the free movement of capital principle.
It is reminded that the absence of disclosure of these accounts can result in a taxation of the amounts transiting through it.

5 - FRANCE - WEALTH TAX - BUSINESS ASSETS - LEADING HOLDING COMPANY
In a decision dated 23 November 2010 (C.Cass, Ch. Com n 09-70465), the French Supreme Court reminds the strict definition of a “leading holding company” whose shares can be considered as a business asset and therefore, can be exempted from the French wealth tax (ISF). Thus, to be qualified as a “leading holding company”, the holding company must actively participate in the management of its subsidiaries, provide services to its subsidiaries and conduct the group policy.

6 - FRANCE – TAX SHIELD – NON RESIDENTS
The guideline 13 A-1-11 dated December 29th 2010 extends the benefit of the tax shield and capping of the wealth tax to non-residents, assimilated to residents liable for tax in France in the sense of article 4 B of the French Tax Code, when their income is entirely or mainly sourced in France.

France is thus in conformity with European law (ECJ 14/02/1995 case C6279/93 Schumacker).

7 - FRANCE - TAX DEFERRAL AND ABUSE OF LAW
In its decision dated February 11th, 2011, the Supreme Administrative Court ruled that the tax deferral benefitting to a taxpayer for the contribution of his shares to a company he controls, immediately followed by their disposal by the latter company, does characterize an abuse of law only if the sole purpose of the scheme enables the taxpayer, by interposing a company, to receive the cash derived from the sale of these shares, while remaining holder of shares received in exchange (CE 02.11.2011, 314950).

However, should the proceeds derived from the sale of the shares be effectively reinvested into an operational activity, such a scheme does not fall within the scope of abuse of law transactions.


TAX AUDIT

8 - FRANCE - PRIORITY PRELIMINARY RULING - TAX PENALTIES
In four decisions dated March 17th, 2011 (n2010-103 to n2010-106), the French Constitutional Council stated that the 40% penalties in case the filing of tax return after a formal request from the French Tax Authorities does not take place, or in case of bad faith, and the 80% penalty in case of discovery of a hidden business activity (articles 1728 and 1729 of the French Tax Code) comply with the French Constitution.

Indeed, according to the Council, these penalties don't infringe the principle of individualization of sentences, as the judge can decide in each case to maintain the penalty rate, moderate it, or to charge only late-payment penalties. Thus, the judge can adjust the penalties to the taxpayer's situation.


INTERNATIONAL

9 - LUXEMBOURG - FRANCE - AMENDMENT TO TAX TREATY
The protocol amending the tax treaty between France and Luxembourg on June 3rd, 2009 has been published (guidelines 14-A-1-11 dated March 17th, 2011). The new protocol updates the exchange of information article so as to comply with current OECD standards. Thus, Luxembourg can no longer oppose banking secrecy to a request from French Tax Authorities regarding revenues received since January 1st, 2010, date at which the protocol entered into force.


10 - USA – SHORTENING OF THE EFFECTIVE DEADLINE FOR VOLUNTARY DISCLOSURE
On February 8th 2011 the IRS had set August 31st, 2011 as a deadline for voluntary disclosure by US citizens, residents and entities of their non-US assets and financial affairs not in compliance with their USA tax reporting obligations. However, it appears the effective deadline will be much shorter, as the IRS is about to secure records of accounts at various banks (including Credit Suisse, Bank Frey, Leumi, Maerki Baumann and a Hong Kong bank). The specter of criminal prosecution looms over those account holders that have not yet complied.






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