A recent decision of the French Conseil d'Etat displays the
contrast between the two systems, and the long road ahead for those
seeking some form of Europeanisation of Corporation tax in Europe.
The European political attempt at this without having managed
to achieve any prior form of harmonisation or even
approximation does not merit the description of a heroic failure,
but perhaps rather one of a permanent car crash.
The main public actions of the GAAR Advisory Panel consists in
giving out guidance as to what might be avoidance that is abusive,
i.e. doubly unreasonable . See its Report of November 2014.
There is an effective procedural requirement that the British
GAAR Advisory Panel be seised, not just consulted, where
adjustments are made under s.209 FA 2013, in cases of perceived
abusive avoidance. The Inspector is required to base any such
adjustments on a s. 209 notice which triggers the procedure
under Schedule 43 Finance Act 2013.
s. 209 (6)
But-
(a) no steps may be taken by an officer of Revenue and Customs
by virtue of this section unless the procedural requirements of
Schedule 43 have been complied with, and
(b) the power to make adjustments by virtue of this section is
subject to any time limit imposed by or under any enactment other
than this Part.
HMRC does not sit on the Advisory Panel, for constitutional
reasons. The French Comités do not have this disadvantage. There is
a significant difference in culture, which is reflected in both the
procedure and in fact the law.
The practical difference lies in the manner in which "abus" is
defined and treated in France. The abus de droit mechanism is
related to the setting aside of a contractual or other document on
the basis that it does not reflect the underlying transaction. It
has been extended to include artificial steps which are purely
intended to obtain a tax advantage. If the French Administration
does not give the Taxpayer the opportunity of a hearing before the
competent Comité d'abus de droit and goes straight to an abus de
droit (abuse of law) reassessment, it is at risk of having its
decision overturned, not only as a matter of law, but also bearing
the full burden of proof. In short, it has to prove that the
arrangement it is seeking to overturn and requalify is an
abus de droit, with the fiscal connotation recently included.
In its decision of 8th July, 2015, the French Conseil
d'Etat rejected the administration's contention that Peugeot could
have proceeded by a different legal route to pursue its otherwise
legitimate aim, albeit of course paying more tax, and that the
Court of Administrative Appeal of Versailles had erred in law. This
was a fairly straightforward issue of the treatment cessions of
shares in a dormant group company to a subsidiary also within Tax
Integration perimeter in the internal French tax consolidation
(Intégration fiscale). Peugeot had acted strictly in accordance
with the terms of the applicable legislation, but had taken the
less expensive fiscal route. The Peugeot subsidiary transferred was
dormant, and was therefore transferred at a loss to the Peugeot
group company whose purpose was to hold dormant companies.
It was not the Holding company's business object to hold
dormant companies. Peugeot needed free treasury, and the
mechanism put in place ensured that, without any form of
dissemblance or lack of transparency. The active holding
company's balance sheet was lightened up by the removal of a
heavily depreciated and dormant subsidiary. The relevant movements
and long term capital losses were compensated for under the
specific provisions of the CGI (Tax Code) relating to long term
capital gains. There is no equivalent to that régime in the
UK.
The administration attempted to set the convention of cession
aside arguing that the Peugeot "active" holding company could have
simply absorbed the subsidiary, and paid more tax. In other
words the French administration changed the contract. Under s 209,
HMRC can do that, but only if it serves a s.209 notice, having
decided that there is an abuse.
The French administration had gone straight to reassessment on
the basis of abus de droit without first going to the Comité d'abus
de droit for an opinion. The Comité is made of a mixture of
Tax inspectors accountants lawyers and people from business.
The administration's ideas as to how a business should be run
are therefore confronted with those of real management.
The Conseil d'Etat upheld the Court of Administrative Appeal's
decision that the Administration's failure to consult the Comité
rendered it liable to prove the abus de droit, which it had failed
to do. The administration can only overturn a written
agreement if it can prove it not to reflect the economic reality
which it covers.
The Clerk at the Conseil d'Etat made a memoire of an unreported judgement n° 95513
of 16th July 1976 of the Conseil d'Etat available to a French
colleague, Patrick Michaud setting aside a judgement of the
Grenoble Administrative Tribunal on the basis that the Tax
administration cannot set aside a transaction and establish a new
one on the basis that a taxpayer has chosen a legitimate method of
achieving his objective, which is fiscally more favourable to
him. That decision predates the 1981 and subsequent
legislative changes in the definition of what a fiscal abus de
droit consists. However, the fundamental principle remains
the same.
Whilst the French system functions very differently to the
British, it remains to see how far the First Instance Tax Tribunal
might consider that HMRC may need to work harder on evidential and
balance of proof were it not to serve a notice under s 209 or seek
the GAAR Advisory Panel's guidance on a specific case.
However, it is only when a section 209 Notice is made that
the GAAR Advisory Panel's immanent jurisdiction is crystalised, and
the Tax payer can seize the Panel.
The Panel's 2014 Report illustrates this:
"D1.1 ... As an overarching comment it is important to remember
a key policy objective of the GAAR - that it is targeted at abusive
tax avoidance schemes, but does not delineate in any way what may
or may not be regarded as tax avoidance in a broader sense and
which HMRC might want to challenge outside the context of the GAAR
in any event."
However, the 2015 Guidance Notes provide further more
detailed comments and in effect discloses the fundamental
constitutional difference between Parliament, the appropriator, and
the Courts, the protectors of the subject's rights, at B.2. .