Law & Numbers - News Tax

Tax News - May 2011

16.06.2011 (France)

Latest news concerning Companies and Individuals

COMPANIES

1 - Terms of deduction of tax credit regarding the corporate tax income

In its decision dated December 7th, 2010 , the Administrative Court of Appeal of Versailles ruled that a foreign tax credit regarding interest of debt, subject for corporate tax income at the standard rate of taxation, is not allocable to the corporate tax income at the reduced rate.
To forbid this deduction of tax credit, the Administrative Court of Appeal based it's decision on the nature of the income concerning the tax credit, according to the provisions of article 220 I a) of the tax code.
Thus, this decision does not establish a difference in treatment between the deduced tax credit concerning French or foreign income and does not affect the free movement of capital (Article 63 TUE).

2 - No obligation to check the customer VAT number

In its decision dated February 25th, 2011, the Supreme Administrative Court confirms that there is no rule enjoining the supplier of an intra-EC delivery to check the VAT numbers of its customers on the European data base VIES.

Thus, according to this decision, the VAT exemption cannot be denied by the French tax authorities to a supplier only because he did not prior check its customer's VAT number, should this supplier not be suspected to know he was part of tax fraud when making this delivery.

INDIVIDUALS

1 - Private assets tax reform in France

The bill for the private assets tax reform was adopted on May 11th at the Ministers' Council. It will be examined at the Parliament in June.

MAIN CHANGES

-Tax shield : Suppression

-Wealth Tax : The tax bracket will start at 1,3 million

Starting 2011, would be submitted to the wealth tax, net taxable estates of at least 1 300 000 euros. The tax return proceedings would be partly simplified (suppression of some schedules annexed to the return) and the calculation of the wealth tax for 2011 would take place following the actual wealth tax schedule. The deadline for the filing and payment of the wealth tax for 2011 would be postponed from June 15th to September 30th 2011.

Starting 2012, the actual wealth tax schedule would be replaced by two rates :

. the taxpayers with net taxable private assets comprised between 1,3 and 3 million euros would be taxed at a rate of 0,25% on the whole of their private assets, with a rebate for private assets comprised between 1,3 and 1,4 million euros.
. the taxpayers with net taxable private assets of more than 3 million euros would be taxed at a rate of 0,5% on the whole of their private assets with a rebate for private assets comprised between 3 and 3,2 million euros.

The tax basis would not be modified. Art would still be exempted, and the main residence would still benefit from a 30% tax allowance. The conditions regarding the exemption of professionnal assets would however be adjusted. The 25% ownership threshold of company share would be reduced, should the taxpayer's participation find itself diluted following a capital increase.


-Inheritance and gift taxes : Increase

. The tax rate of the two last brackets applicable to inheritances and donations made to direct ascendants or descendants, as well as donations made between spouses or partners bound by a PACS (with private assets between 0,9 and 1,8 million euros and more) would increase by 5%, going from 35% to 40% and from 40% to 45%.
. The decrease of the gift taxes granted according to the age of the donor (for example, the 50% tax rebate applicable to donors under 70 years) would be abolished.
. The tax allowances up to 159 325 per child and per parent would be renewable only every 10 years (for the moment every 6 years).

-Exit Tax : Creation

. Creation of a 19% exit tax, applicable to capital gains made on the disposal of substantial equities for taxpayers who choose to leave the country.


This list isn't exhaustive. Aside from the reform's key measures, other measures have been adopted, amongst which :

- the simplification of the tax regime applicable to shareholder agreements, called "pactes Dutreil"
- tax on non-residents' secondary residence
- taxation of the assets as part of a trust to the wealth tax and gratuituous transfer taxes...


WHAT WOULD NOT CHANGE

- Tax treatment of life insurance proceeds : no changes considered
- Dividends : unchanged withholding tax of 19%

2 - In the trusts we (no longer) trust

The private assets tax reform details the tax regime for donations and inheritances realized via a trust, as well as the rules applicable to the taxation of the private assets.

As of the publication of the law, donations or inheritances realized via a trust that could be qualified as such, would be submitted to donation or inheritance tax, according to the applicable brackets, that depend on the type of family tie existing between the grantor and the beneficiary.

When a donation or an inheritance transfer cannot be characterized, specific transfer taxes would apply in the case of the grantor's death, be the assets transferred at the death of the grantor or later on.

Thus, should the beneficiary's share in the trust be determined at the time of death of the grantor, this share would be taxed according to the applicable brackets that depend on the family tie between the beneficiary and the deceased grantor. Should the share of the beneficiaries not be determinable, the share of assets as well as the capitalized rights meant to be transferred to the deceased's descendants would be taxed at the maximum rate applicable to the descendants in direct line, and the other remaining assets and rights in the trust would be taxed at 60%.

These rights would be due when the deceased has it's tax residence in France, or when the trust's assets are located in France.

It is to be noted, that the 60% rate would be applicable to any donation and transfer by death realized via a trust set up in a non cooperative jurisdiction as defined by the French tax authorities.

It is also envisaged that, starting January 1st, 2012, the total assets or capitalized rights within the trust be subject to wealth tax at a 0,50% rate when the grantor and the beneficiaries are French tax residents. For non French tax residents, the wealth tax would apply only to the sole assets located in France. The taxation would be due by the trustee, or, by default, by the grantor or the beneficiaries.

This taxation would however not be due on the assets and rights within the trust already declared by the grantor or a beneficiary's for their own wealth tax.







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