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