Law & Numbers - News Tax

TAX NEWS - APRIL 2011

11.05.2011

Companies, Individuals, Tax audit and international news.

COMPANIES

1 - France - Tax deferral and abuse of law
In its decision dated February 3rd, 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 not characterize an abuse of law, so long the taxpayer reinvests the sale proceeds into an economical activity (CE 02.03.2011 329839).
However, the Supreme Administrative Court specifies that the definition of economical reinvestment excludes patrimonial investments, amongst which shareholders current accounts.


INDIVIDUALS

1 - France - Private assets tax reform
Outline of the private assets tax reform, announced on April 13th by the Government.
The full content of the reform will be disclosed as part of the supplementary budget bill at the Ministers' Council, of May 11th. The supplementary budget bill will be reviewed by the Parliament beginning of June.

What would change :
- Tax shield : Suppression
- Wealth Tax : Simplication of the tax brackets (300 000 household incomes should no longer be subjected to wealth tax)
The first bracket would start at 1,3 million euros of net taxable private assets.
Two tax brackets and two rates : bracket from 1,3 million to 3 million euros, taxed at 0.25%, and above 3 million euros, taxed at 0.5%. The Wealth Tax would be due starting the first euro.
The tax basis would not be modified. Art and professionnal assets would still be exempted, and the main residence would still benefit from a 30% tax allowance.
Suppression of the capping of the wealth tax at 85% of the income of the previous year.
These modifications could come into force after the filing of the wealth tax return for 2011.
- Succession fees : Increase
The tax rate of the two last brackets (private assets between 0.9 and 1.8 million euros and above) would be increased by 5% : from 35% to 40% and from 40% to 45%. The tax allowances up to 159 325 ¤ per child and per parent would be renewable only every 10 years (actually every 6 years). The advantages granted according to the age of the donor would also be abolished. C.g., the 50% tax rebate applicable to donors under 70 years.
- Exit Tax : Creation
Creation of a 19% exit tax, applicable to all tax payers who choose to leave the country.
This exit tax would be assessed on latent capital gains on shares.


What would not change :
- Tax treatment of life insurance proceeds : no changes considered
- Dividends : unchanged withholding tax of 19%


TAX AUDIT

1 - France - State liability in tax law
In it's decision datted March 21st 2011, the French Supreme Administrative Court repealed the distinction between heavy mistake and simple negligence in matters of State liability.

The State's liability could thus be engaged on the basis of a simple negligence for all of the tax authorities' illegal operations (related or not to the appreciation of the taxpayer's situation). However it would be necessary to establish that there is a direct link between the illegal decision that constitutes a negligence and the prejudice invoked by the taxpayer.

This prejudice may be the result of disturbances in the living conditions of the taxpayer, or material consequences with respect to said taxpayer (CE 21st of March 2011 n°306225 section).


2 - France - Update of the French list of non-cooperative jurisdictions
A decree dated April 14th 2011 updated the French list of non-cooperative jurisdictions published on February 12th, 2010 as per Article 238-0A §1 of the French Tax Code.
As of 1st January 2011, Saint-Kitts-and-Nevis and Saint Lucia are removed from this list. Inversely, Oman and Turk and Caďcos islands are added to the list.

Thus, for the fiscal year 2011, the list includes the following countries and territories :

- Anguilla
- Belize
- Brunei
- Costa Rica
- Cook islands
- Dominica
- Grenada
- Guatemala
- Liberia
- the Marshall islands
- Turk and Caďcos islands
- Montserrat
- Nauru
- Niue
- Oman
- Panama
- the Philippines
- Saint-Vincent and the Grenadines

INTERNATIONAL

1 - EU - Dividends from foreign sources - Double taxation
On February 10th, 2011, the European Court of Justice issued a decision on the elimination of double taxation on dividends from a foreign source perceived by Austrian companies from companies located in other Member States and outside the EU (CJUE 02.10.2011 aff. 436/08 et 437/08, 3e ch., Haribo Lakritzen Hans Riegel BetriebsgmbH et Österreichische Salinen AG).

In this decision, the Court stated that the non elimination of double taxation on dividends coming from companies located outside the EU goes against the provisions of article 56 of the CE regarding the free movement of capital (equality principle). Moreover, the Court ruled that to subject the exemption of dividends to the conclusion of mutual assistance agreement with EEE states goes against provisions of article 56 of the CE (proportionality principle).

The Court also stated as a principle the equivalence of the methods used to eliminate the double taxation while considering that the Members states are allowed to choose their methods.







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