Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

L'arrêt du Conseil d'Etat sur la capitalisation des intérêts dans l'affaire Carrefour: impact sur les financements islamique

June 25th 2018

The French Conseil d'Etat has handed down an important and far reaching decision which whilst not explicitly stated to do so will affect Shari'ah law loans granted to French companies using offshore trustees to hold capital zero-coupon bonds representing what the non-shari'ah borrower would consider interest.

This a classic Shari'ah international finance  structure designed to comfort both the lender and the borrower by taking account of their conceptions and legal requrements. The capotal repsenying the iterst fomr teh borrower's perspective is traditionally placed through a neutral offshore trust platform, rather than through an onshore arrangement.

Carrefour who were in the prior borrrower's Promodès, shoes, chose not to attempt to deduct the deemed interest, but rather to pay the tax laid down by article 238 bis-0 I bis code général des impôts on payments to offshore trustees, and then reclaimed the payment, as not being a payment due under that article. It thus avoided any late payment of interest penalties and an abus de droit procedure. Financially, also,  this was a positive outcome for Carrefour.

The administration refused to reimburse the payments made, and the lower court dismissed the claim. However, the Cour d'Appel de Versailles decided in favour of Carrefour. The administration appealed, but the Conseil d'Etat in a succinct judgement stated that when taken with L. 228-97 du code de commerce and the Code monétaire, the payments were simply not subject to the offshore payments régime laid down under article 238 bis-0 I bis. I quote the judgment:

"4. Dès lors, en se fondant sur la circonstance que si la convention de prêt qu'avait conclue la société Promodès avec la banque Barclays, qualifiée par les parties de prêt subordonné à durée indéterminée reconditionné, avait les mêmes caractéristiques que les opérations comportant l'émission de titres subordonnés à durée indéterminée, elle n'avait pas donné lieu à l'émission de valeurs mobilières, pour en déduire que les produits tirés d'une fraction des sommes reçues lors de la conclusion de ce prêt n'entraient pas dans le champ d'application de l'article 238 bis-0 I bis du code général des impôts, la cour administrative d'appel de Versailles n'a pas commis d'erreur de droit."

This is of interest to offshore trustees providing such loan services to French companies out of Shari'ah liquidities.

The Conseil d'Etat in fact enabled the duty free introduction of significant Islamic capital, linked to foreign Islamic investments and put the neo-cartesian attempts at subjective logic in the shade.

The irony is that the islamic mentality accepted that the only way through the inhernet cointradictions inteh French fiscal and moeetary French legaliimbroglio was to pay the due and then reclaim it on the basis that it was not due. That simply put any attempt by the administration to allege an abus de droit by the lenders, the Banker or the borrowers into the long grass. Shades of interlocutory hearings and procedures in an Alexandrian Islamic Doctoral ruling.