• Service: Tax, International Corporate Tax, Global Transfer Pricing Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 11/21/2012

France - Cross-border implications of exit tax, enhanced tax-investigative proposals  

November 21: The third draft legislation to amend the tax law (Projet de loi de finances rectificative pour 2012) was presented 14 November 2012 to the Assemblée nationale. The draft bill includes exit tax provisions that may have transfer pricing implications.

Also, draft legislative measures would expand the authority for tax-related searches and seizures conducted by the French tax authorities in matters involving cross-border transactions of multinational entities.

Exit tax measure

Article 16 of the draft bill clarifies the application of section 221 of the French tax law (Code général des impôts- CGI).

CGI section 221 contains provisions concerning the tax consequences when a head office is moved from France to another country, upon termination of a business. In general, the interplay of CGI sections 221 and 201 requires the immediate determination of the amount of income tax that would payable on unrealized (latent) gains and on revenues not previously taxed. However, section 221 specifically excludes from such taxation the transfer of a head office from France to another EU Member State (except if such transfer also includes the transfer of the head office’s underlying capital assets).

Section 16 of the draft bill would amend CGI section 221 to reflect two recent judgments of the Court of Justice of the European Union (CJEU). The CJEU held that Portuguese and Dutch law measures providing for the immediate taxation of unrealized (latent) gains on capital assets concurrent with the transfer of a head office from the county was not a “proportionate restriction” on EU treaty principles.

Thus, section 16 of the draft bill would provide for payment of tax on the unrealized (latent) gains over a period of five years following the transfer of the head office to another EU Member State or member country of the European Economic Area (EEA) having an income tax treaty with France that contains a mutual assistance clause. If there were to be a subsequent sale or transfer of the assets outside of the EU or the EEA before the expiration of the five-year period, the balance of the amount of income tax related to the unrealized (latent) gains would be immediately payable.

The proposed legislation also would extend these rules to the transfer of a permanent establishment.

Tax-related searches and seizures

A proposed legislative provision reflects an increased focus on cross-border transactions of French subsidiaries of multinational companies. The French government proposed an amendment to article L 16 B of the French tax procedure code dealing with tax-related searches and seizures.

The draft legislative version of article L 16 B would authorize the French tax authorities to conduct a search-and-seizure operation and look for evidence of tax evasion wherever relevant documents may be stored—including data on servers.

According to the draft legislative provision, the French tax authorities would be authorized to seize data supports (e.g., servers) without affording the taxpayer an opportunity to contest and refuse such seizures.


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