Overseas Chambers of Peter Harris

Overseas Chambers
c/o Addington Chambers
160, Fleet Street,
London EC4A 2DQ,
United Kingdom
https://addingtonchambers.com

Fellow of the European Law Institute Vienna
https://overseaschambers.com/
Barrister at Law - Regulated by
the Bar Standards Board
Bar Mututal insurance: 8015/009

Jersey residents and French capital gains. Marseille Court of Appeal confirms that EU Freedom of movement of capital overrides French discriminatory withholding tax rates.

November 10th 2014

Case référence : N° 12MA00676  Cour d'Appel de Marseille 4ème Chambre 7 octobre, 2014.

 

Once again the French administration have been  slapped across the face by their own courts, who did not need to refer to the CJEU in Luxemburg, given that the law is clear.  It is unclear whether the French administration will attempt to appeal it, but if they do attempt to do so, the refusal by either the Conseil d'Etat or the Cour de cassation will be inevitable.

 

The case is interesting as it shows that in the case of a withholding tax, the French courts will be very wary of imposing  at higher rates on the basis that there is no information exchange agreement in place, where the information is not relevant to the calculation of the tax.

The Jersey resident couple who owned a property at Cap Ferrat were both British nationals who lived in Jersey, Channel Islands.  Their sale of the property on the 28th February, 2008,  required the intervention of a Permanent representative to make the declaration and pay the due on their behalf.

The capital gain on the sale was significant.  They were assessed at a rate of 33 1/3% which they challenged before the Tribunal administratif de Nice. The Nice tribunal upheld the assessment on 10th February, 2012. The couple had asked that the tax paid be entirely reimbursed.

The couple appealed the Nice Tribunal's decision.

The Marseille Court of Appeal went straight to the EU Freedom of movement of capital point and did not feel it necessary to address the other grounds of appeal raised.

The Court  did not specifically address whether Jersey was within or without the Union, it is in fact in, but the issue was whether the EU Freedom of movement of capital provisions permitted a discriminatory rate to be applied under the standstill measures in force in 1992. The administration had argued that the standstill provisions applied, as usual. The Court held that as it was not a commercial or "economic" investment, but a private one, the standstill provision could not apply to third country parties. This is a principle which is readily accepted now by the French courts.  The Court in fact applied C-181/12 Welte CJEU and held that the Standstill provisions were inapplicable and that the discriminatory rate was a restriction on capital movement prohibited by article 56 EC.

However, the inference was that Jersey was outside the EU and constituted a third state.  That point could have been raised at some point in the proceedings, but was not.

The couple argued that the increased rate was applied because they lived in Jersey, and that that constituted a discrimination, as the rate that would have been applied had they been resident in the EU  would have been 16%, in 2008.

The Court held that as the tax was a prélèvement or withholding tax, there could be no justification for arguing that there was a need for an information exchange arrangement to be in place, as there was no information, needed to define and calculate the withholding tax. An exercise in French, and indeed EU  logic from which the administration apparently considered itself exempt.

This will resonate throughout the French tax system, in that the principle for equivalent EU tax treatment of third state nationals and companies within the EU principles is that there is a need for information exchange in certain types of taxation. However, it is clear that this is superfluous in a forfeitary or withholding tax situation where the information concerned is irrelevant to the calculation of the tax base.

Despite their efforts to elude the tax entirely, the Court held that the withholding tax itself was still valid, but the rate had to be the same rate as that applicable to non-residents in the EU; in this case 16%, in 2008.

 

To make the point, the Court of Appeal condemned the Ministry to  costs of € 2,000 which were not set out in the pleadings, and just to make sure the decision did not get lost in the administration between Paris and Nice, the decision was directed to be sent both to the Ministry in Paris and the separate tax control division in the South East.

 

It is clear that the CJEU's recent decisions in relation to tax discrimination against individual residents of third states is being taken into account by lawyers pleading in France, and to great effect.

 

Contact Peter for further information and advice on the effect of this decision and other cases on your position in France