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.