European Union: French Tax Report July 2018

Last Updated: 20 July 2018
Article by Siamak Mostafavi

We are pleased to provide you with a summary of certain recent French tax news, and would be glad to discuss with you in more details any of these matters which may be of specific interest to you. Please also let us know if anyone else within your organization would be interested to receive our periodic French Tax Reports.

1. Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (Multilateral Convention)

On July 12, 2018, the French Parliament ratified the Multilateral Convention which entered into force on July 1, after 5 countries deposited with the OECD their relevant instruments of ratification.

The list of 88 tax treaties covered from a French perspective is as follows (Covered Treaties): Albania, Andorra, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belgium, Benin, Bosnia-Herzegovina, Brazil, Bulgaria, Burkina-Faso, Cameroun, Canada, Chili, China, Columbia, Croatia, Cyprus, Czech Republic, Egypt, Estonia, Finland, Gabon, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italia, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kuwait, Latonia, Lebanon, Lithuania, Luxemburg, Malaysia, Malta, Mauritania, Mauritius, Mexico, Monaco, Mongolia, Morocco, Netherlands, New-Zealand, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Senegal, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, United States, United-Kingdom, Vietnam, Zambia, Zimbabwe.

The list of treaties which are not covered from a French perspective includes inter alia: Algeria, Bahrain, Belorussia, Bolivia, Botswana, Central Africa, Congo, Equator, Ethiopia, Ghana, Guinea, Iran, Kyrgyzstan, Kosovo, Libya, Macedonia, Madagascar, Mali, Malawi, Montenegro, Namibia, Niger, Oman, Panama, Togo, Trinidad and Tobago, Turkmenistan, UAE, Uzbekistan, Venezuela.

From a practical perspective, and depending on the ratification process of the counterparties to the Covered Treaties, the Multilateral Convention may be effective as early as January 1, 2019 (assuming France would deposit the ratification with OECD before October 1, 2018). Please let us know if you have a question on the implications of the Multilateral Convention on one or more of the Covered Treaties.

As a reminder, the Multilateral Convention includes, inter alia, the following matters, it being said that each given jurisdiction provides a list of the matters it agrees to be covered, and the relevant provisions become effective only if the other counterparty has also included such matter in its own list:

  • hybrid mismatches: transparent entities, dual resident entities and methods for elimination of double taxation;
  • treaty abuse: purpose of a tax agreement, prevention of treaty abuse (limitation on benefits provision and/or principal tax purpose test);
  • dividend transfer transactions;
  • capital gains from alienation of shares in “real estate entities”;
  • artificial avoidance of permanent establishment status;
  • splitting-up of contracts;
  • mutual agreement procedures;
  • arbitrations.

It should be noted that France has opted for the “principal purpose test” in respect of treaty abuse (but not for the limitation on benefits provision).

2. Carried interest for impatriates

During the Paris Europlace International Forum, on July 11 and 12, 2018, the French Prime Minister announced that, as part of the tax measures to make France attractive, the “carried interest” for impatriated fund managers would be taxed as capital gains (rather than as salary) for a period of 3 years (renewable once). We will update you on this point, when the actual legislation is proposed to the Parliament.

It should be noted that, as part of a legislation currently discussed before the Parliament, it is proposed that for a period of 3 years (renewable once), the impatriates would not be, under certain conditions, obligated to be affiliated with the mandatory French retirement system (i.e. a saving of 8.55% on part of the salary, and 1.9% on the whole of the salary).

As a reminder, under a legislation voted end of last year, the salary tax (essentially due by financial institutions) is not applicable to, inter alia, the impatriation bonus of the impatriates for a period of 8 years.

Also the impatriates benefit from specific income tax exemptions (e.g. impatriation bonus, foreign income, etc.)

3. State Aid

On June 20, 2018, the EU Commission announced that they have taken the view that Luxemburg have allowed two entities belonging to the Engie group (formerly GDF Suez) to avoid paying taxes on a significant portion of their profits; according to the Commission, the avoided tax amounts to circa € 120 million and should be viewed as an illegal state aid under the relevant EU rules.

In essence, under the tax rulings issued by the Luxemburg administration, a set of financing between members of the Engie group were treated as both debt (for the issuer) and equity (for the investor). The relevant instrument was a convertible loan where the interest was deducted on an accrued basis by the borrower (but not paid), the effective payment being made in the form of exempt newly issued shares at the maturity of the loan.

The Commission has taken the view that the tax rulings have given a selective advantage to the Engie group without justification.

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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.

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