Credit institutions subscribe to insurance companies contracts, the purpose of which is to offer guarantees against death, invalidity or work incapacity which might affect their subscribers before their debt is entirely reimbursed.

This type of contracts usually provides for a system of the guarantee remuneration at a fixed rate requiring, subject to keeping the contract well-balanced as a whole and in order to avoid an increase in the contribution rates applying to new loans, the setting-up of a general stability device.

This device is based on the setting-up of a reserve for lack of services or on a stability reserve when the contract allows to show a profit which will be used to cover possible losses.

During tax audits, the French Tax Administration considered that this reserve or provision would be representative of a receivable held by the credit institutions on insurance agents and that as long as this receivable would remain certain in its principle and in its amount, it should be booked on the balance-sheet with respect to Article 38-2 of the French General Tax Code.

The Administrative Court of Appeal of Paris, in two decisions dated February 2, 1993 and June 29, 1993 granted an exemption to the contested tax assessments. The Administrative Court of Appeal of Paris, in a decision dated February 2, 1995 cancelled the decision of June 29, 1993 thus agreeing with the position of the Tax Administration. The Supreme Court should arbitrate this issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. For additional information contact Claire Acard on 33/(1)/55 61 10 10 or Lionel Benant on 33/ The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.