It is very easy to forget that the French system of Corporation tax, Impôt sur les sociétés differs from most other European, Western and OECD jurisdictions in that it is territorial in its application.  That means that foreign corporate profits are normally effectively outside the scope of the tax.  I will not go into the issues which that raises of where a cycle complet d'activité is situated here.

That means technically that profits earned through foreign branches and  subsidiaries are not included in the French head office's or mother company's tax  returns, with certain statutory exceptions such as the now repealed bénéfice consolidé, or in the case of branches bénéfice mondial régimes. The French administration has been very adept in the effective extension of its taxing rights through Tax Treaties, which as Treaties extend the effective scope of the Tax base outside that of the Code général des impôts.

In the 1980s, the French Government decided that that effective exemption of foreign profits from French taxation should be based if not rebased upon the ideal that this was in effect a means of excluding double taxation of eth same profit, and that branches or companies in lower tax régimes, or effectively tax  exempt subsidiaries or branches should be included in the main French tax return as there was no point in enabling their profits not to be taxed in France if there was no taxation where those profits were made.  That was the point of article 209B CGI which was subsequently extended as the definition of a fiscally privileged tax régime developed, now see 238A CGI.  That article  effectively extended the French tax jurisdiction outside its previous territory of its enforcement and enforcability.

That was in a bygone era which has been overtaken firstly by the globalisation of the World industrial and commercial context, and secondly by the information exchange facilities now available to tax administrations.

The recent decision handed down on 30th December, 2015 of the French Conseil d'Etat makes it clear that the 209B régime only applies where here is no real activity engaged in by the foreign branch or subsidiary.

BNP Paribas has a subsidiary in Hong Kong which has a tax régime considered to be privileged by the French administration. However, article 209B CGI gives a let out when the branch or subsidiary has a real presence and activity there and is not just a booking centre there just for the tax break.

The question of the onus of proof as to the effective activity was one thing, the Court de Cassation held in favour of the Bank, on that point, which given the Bank's required presence in the Asiatic market was hardly surprising.

One of the French administration's arguments was that as some French residents had accounts in the Hong Kong entity, the effective let out did not apply.

The Court de Cassation effectively held in its decision N° 372733 handed don on Wednesday 30th December, 2015 that article 209B CGI was specifically destined to regulate corporate issues. The fact that entities owned by French residents had accounts in the Hong Kong entity and that money had been collected in France did not mean that there was no effective activity in Hong Kong or that there should be a fiscal reallocation of those accounts back to France by using 209B CGI to achieve a tax reallocation.  The Court specifically stated that the objective of 209B CGI was to stop French corporates from reducing their tax liability, not against individual taxpayers who wished to place their money in a bank established in a fiscally privileged régime.

That same logic was applied to the Guernsey indirect subsidiary as well in the Courts decision N° 372522 handed down on the same date.

The Ministry's appeals en cassation was rejected.

Had the Court de Cassation not so held, there might have been a risk that the next time round, the French administration might consider attempting to argue the fiscal reallocation of the material base of such accounts for gift, succession, stamp duty and ISF purposes held in a foreign subsidiary as opposed to a branch back to the head office in France for droit d'enregistrement purposes. That might  have had the effect of placing those accounts under the French legal definition of a French situs asset. The stamp duty rule is that accounts held at a foreign branch of e French bank remain foreign situs despite the issue that they form part of the Head Office's legal accounts as a debt.  It might be tempting for the French administration to attempt to change that by an underhand move of this nature despite information access.

They might have an argument for doing that in the case of a foreign branch, as opposed to a subsidiary as it is only practice coupled with banking regulations which remove these from the head office's books for such purposes.  Hence the banking preference for subsidiaries.