Newsletter Lexunion Nº12 – 4T 2017

We are glad to let you know that the 12th edition of the Newsletter of our network LEXUNION is now available.

It’s a free quarterly newsletter that deals with legal and tax developments in member countries of the Lexunion network, with the purpose to help french compagnies and persons clients of our network.

It can be downloaded on this link: Newsletter client – Lexunion 12-2017_en-fr


A) Main changes arising from the Finance Law for 2018

  1. Reduction in the rate of corporation tax

Corporation tax will gradually go from 33.3% to 25% by 2022.

  1. The wealth tax will be replaced by the property wealth tax

The wealth tax is abolished and replaced by the property wealth tax. The taxation threshold (€1.3 million) and the rates remain identical but the tax base is modified because the property wealth tax is now only based on property assets held directly and indirectly.

Note that anti-abuse measures have been taken, notably concerning the deductibility of loans.

These measures are therefore likely to affect plans put in place for non-residents.

  1. Flat tax on income from capital

A flat tax is put in place at a rate of 30% on property income (interest, dividends and property capital gains) representing 12.8% income tax and 17.2% social-security deductions, from 1 January 2018.

The rate of taxation applicable to non-resident natural persons will depend, concerning the income tax, on any provisions of a tax agreement.

Property income and real-estate capital gains are not concerned by this flat tax.

B) Jurisprudence in international law

  • Reserved share of estates and public policy

The Court of Cassation, by two rulings dated 27 September 2017, judged that a foreign law ignoring the reserved share of estates is not, in itself, contrary to French international public policy.

The international public policy exception could, however, apply in the case where the persons entitled to a reserved share are in a situation of economic insecurity or need.

  • Taxation and abuse of rights

Abuse of right may be constituted by the application of the provision of an international agreement.

By decision dated 25 October 2017, the Council of State ruled abusive the interposition of a company whose existence was justified by the sole aim of avoiding tax through the application of a tax agreement.


Dedicated bank account for tax payments

The law 4 August 2017, n° 124, published in GazzettaUfficiale No. 189 of August 14th, 2017 (annual market and competition law), by changing the discipline referred to in paragraphs 63 et seq of the law December 27th, 2014, no. 147, made it mandatory for notaries to have a management capable of ensuring transparency and traceability of some of the sums received and anticipated by different ways.

In particular, the notary has to pay on a special dedicated bank account “all sums due by way of charges for which the same notary is withholding agent”. He must also “pass” on this dedicated bank account, “However the prepaid expenses referred to in art. 15, paragraph 1, no. 3)”of Presidential decree no. 633/1972, are excluded from the calculation of the taxable amount for VAT purposes.

Art. 1, paragraph 65 of the law December 27th, 2013, no. 147 provides in particular that “The sums deposited in the bank account, referred to in paragraph 63, constitute separate property. Those sums are excluded from the succession of the notary or other public official and from his matrimonial property of the family and exempt from foreclosure by anyone and also the credit to the payment or to the payback of the same is free from foreclosure.”

The legislation does not expressly provide for the obligation for the notary, to have, in addition to the dedicated bank account, at least anotherbank account at the same bank or at another financial institution.

However it is considered improper to manage financial transactions by using a single bank account on which any amount is brought.

The notary then must have at least two bank accounts:

– a “dedicated account”, to record the transactions of the received sums (or anticipated) “in relation to the deeds received or authenticated by the notary and subject to real estate or commercial publicity”;

– a “free” account that can be used for other purposes (fees, VAT, personal expenses and expenses for the office, etc.).

The forecast of paragraph 63 is very wide where it expressly states that on the dedicated bank account must be paid the amounts owed for taxes for which the notary is withholding agent and the expenses excluded from the calculation of the taxable base according to art. 15, paragraph 1, no. 3) of Presidential decree no. 633/1972. However, the traceability concerns only the amounts received (or anticipated) “in relation to the deeds received or authenticated by the notary and subject to real estate or commercial publicity.”

On said bank account must be paid all charges levied by the notary in connection with the so-called execution (such as stamp duties, land and mortgage taxes, etc.), advances excluded from VAT according to art. 15 and any other sums entrusted to the notary “and subject to entry in the register of the amounts and values of which at law January 22nd, 1934, no. 64”.

The notary is obliged to maintain appropriate documentation of the specific uses of the amounts deposited in the dedicated bank account and subsequently used.

This shall be without prejudice to art. 3 of Ministerial Decree of 31 October 1974, which provides for the possibility for operators in the notarial profession to postpone the issuance of the invoice within 60 days of thereceipt of the amount from the customer.



New rules on companies’ restructuring in Andorra

Andorra has established a special tax regime for merger and acquisitions operations for companies settled in that country.

It also includes operations of non-proportional splits and of assets return, aiming to ease the resolution of conflicts in Andorran business, especially among family offices. Thus, those rules make restructuring of family holdings a tax-free operation.

Nevertheless, Andorra wants to avoid using those rules just for tax reasons, so a valid economic reason is necessary in order to benefit from those tax exemptions.

Tax benefits in those operations include not only Corporation Tax, Personal Income Tax on its shareholders, and Non-residents Income Tax, but also every other tax or duty to be paid because of that restructuring.

The procedure used for those benefits is tax deferral, to avoid taxing the amounts accrued due to restructuring purposes, only in those cases where any Andorran tax was due.

This tax regime is fully aligned with the European Directive 2009/133/CE on the common regime applicable to mergers and acquisitions in the European Union, so it should not be difficult to implement for those notaries and lawyers working in the EU with any relationship with Andorra, France or Spain.