To cite the Tax lecturer at the Inns of Court School of Law in
1977 in relation to a British taxing statute:"there's a lot of that
demn'd deeming going on here". No tax lawyer can or should
tolerate fiscal abuse of fiction, let alone "irrebuttable"
fiction upon a statutory fiction, simply on the basis that "that is
the law". It is not that straightforward as it may not be either a
law or for that matter a regulation. It may not even be
constitutionally valid.
A colleague in Paris kindly mentioned that a senior lawyer from
the Conseil Constitutionnel - French
Constitutional court - gave a seminar on the Constitutionality of
fiscal deeming provisions in Paris.
The speaker outlined the position in a recent referral from the Conseil
d'Etat registered as received on 10th July, 2017 under
the Question Prioritaire de
Constitutionalitéprocedure concerning the constitutionality
of certain of the deeming provisions in article 123 Code
général des impôts. That broad brush provision refers
to fiducies and other comparable entities - i.e.
trusts. The affair will be heard in the autumn.
Whilst granting the referral procedure on certain points,
the Conseil d'Etat abstained from referring
certain others one the basis that these had already been the
subject of a decision by the Constitutional Court, which had
admitted their colstitutionality, subject to a reservation that the
taxpayer be allowed to produce evidence as to the actual taxable
income concerned.
The point here is that article 123 CGI refers, now, to
"fiducies" or other comparable structures (implying trusts) as one
of the vehicles falling within its scope.
In past decisions, the Conseil
Constitutionnel did not direct its attention to any
executive decree, or instruction, as these fall outside the scope
of its constitutional reference. Those issues fall mainly within
the jurisdiction of the Conseil d'Etat. It is
basically only statute which falls within its remit. What
the Conseil Constitutionnelhas
however started to do is to qualify the constitutionality of
deeming provision of the types inserted into article 792-0 bis CGI
at several points and render these subject to a requirement that
the taxpayer be allowed to provide evidence rebutting the
presumption as to the taxable forfeitary basis laid down in any
anti-avoidance article. That t he chink in the administration's
chain mail.
It is common knowledge that the French tax administration has
deliberately gone beyond its powers in many areas to serve its
political masters' need to sweep in any tax revenue possible by
hook or by crook. In any jurisdiction with a constitution, there is
always a backlash to such administrative and executive abuse of the
lawmaking machinery.
That can be aligned with a successful prior DC reference by
the Sénat challenging a draft Finance Bill's
provision transferring Wealth Tax liability to a person who
does not have the income rights in the capital asset concerned, and
is therefore unable to pay the tax. That decision, on a purely
internal French property law mechanism, means that the entire
article 792-0 bis CGI régime can be queried as contrary to the
constitution and in particular to the principles of equality before
the law and of equality before "les charges
publiques". In layman's terms, the conceptual status of
these constitutional norms and values strikes down any attempt to
attribute a tax liability on a fictional basis to a person who doe
not have the means to pay it.
Whilst stressing that the terms and objectives of article 123
CGI are not the same as the presumptions upon fictions established
by article 792-0 bis CGI and the taxation provisions which depend
upon it, the outcome of this QPC will need to be followed closely
by any lawyer advising trustees in this area.
The action of the administration in deliberately drafting a set
of presumptions based upon the pre-millennium IRS Grantor Trust
régime, and ignoring the complex trusts régime initiated in its own
instructions on the US Tax Treaty issued in the 1970s needs to be
challenged, as it is being given a fictional force of law,
despite having no legal basis whatsoever.
A colleague, Mark Lindley TEP, CTAPS of Bootle Hatfield has
kindly pointed out that a French cabinet d'avocats, Cabinet
Bornhauser has filed a challenge with the Conseil d'Etat to
the administrative instruction commenting the trusts assorted with
QPCs to the Conseil Constitutionnel, presumably as to the
constitutionality of the legislation.
The Cabinet Bornhauser are merely indicating that this has been
done, and there is insufficient detail to be able to analyse the
full implications of their pleading for the overall industry,
yet.
In that respect, please see:
http://blog.bornhauser-avocats.fr/index.php/2017/07/02/regime-fiscal-des-trusts-les-qpc-sont-deposees/
and
http://blog.bornhauser-avocats.fr/index.php/2017/03/17/amende-trust-un-demi-succes/
The main point that they are raising before the Conseil d'Etat,
with added QPC references is the constitutionality of levying trust
penalties on underlying structures which are not trusts. The French
administration have been busily exploiting the constitutional
differential between executive doctrine and statute.
However the issues raised in their defence of their clients are
not the only challenges available against the legislation when
taken as a whole.
So there is no point in simply awaiting the result of this
laudable challenge, where your clients are being taxed in other
ways, particularly in relation to the fiscal forced heirship
provisions , as such they may be dubbed, in article 792-0 bis II
CGI. However, is that not contrary to French public policy to
attempt to render foreign properfty subject to French internal
rules of public order, particularly in relation to foreign
movables? The answer is yes, it is contrary to prior statements of
principle by the French courts as to the differential between
French ordre public national limied to French property and
the loi d'autonome in matte rof foreign law guaranteed by the ordre
public international.
Those do need to be challenged, as fiscal fiction upon legal
fiction does not a law make.