France Signs Off On 2015 Finance Act

CMS Bureau Francis Lefebvre, a leading French law firm, has noted that the 2015 Finance Act and the Rectificative Finance Act for 2014 were adopted by the French Parliament on December 18. Certain provisions have been reviewed by the Constitutional Court, which issued its ruling on December 29. Both laws are now final.

According to the firm, the amendment to the penalties applicable for incomplete transfer pricing documentation has been declared in line with the Constitution. The new penalty, amounting to 0.5 percent of the value of the transaction, was considered to be proportionate and consistent with the infringement.

However, according to the update from CMS Bureau Francis Lefebvre, the Court struck down two other proposals. First, it had been proposed that the participation exemption would not have been applicable to dividends received from foreign subsidiaries, in cases where their profits were not subject to corporate tax in France or where a tax deduction for dividends was paid out. The Court ruled that this provision is not constitutional since it does not define clearly enough the profits at stake and specifically those derived by second-tier subsidiaries.

Next, it was proposed that advisors who assist taxpayers to avoid tax through transactions that would be in the scope of the abuse of law rules would have been liable to a five percent penalty on proceeds derived from such assistance. The provision would have been applicable on transactions realized after January 1, 2015. According to the firm, the Court ruled that this provision is not constitutional because it was not clear enough as to whether the infringement is constituted by the characterization of an abuse of law or by the mere proposed adjustment. Furthermore, it was unclear whether the five percent penalty should apply to the proceeds of the advisor or of his client.

Stéphane Gelin, Partner, CMS Bureau Francis Lefebvre, said, “It should be stressed that both provisions have been ruled un-constitutional mostly because of their poor drafting: they had been proposed by Members of Parliament during the discussion on the draft legislation prepared by the Government. One cannot exclude that similar provisions will be proposed again in 2015. Similarly, an amendment to penalties applicable to transfer pricing documentation (worth 0.5 percent of total revenues of the taxpayer) had been rejected by the Constitutional Court in 2013 on the grounds that it was disproportionate to the infringement. The wording of the provision was thus successfully amended this year.”