Convention between France and Spain as it relates to income and inheritance tax

folder_openFamily / Succession, Tax
France Mutation Newsletter 1T 2023 Lexunion
France Mutation Newsletter 1T 2023 Lexunion

Update of the French doctrine on successions (BOI-INT-CVB-ESP-20)

The French tax authorities have updated their doctrine on the convention between France and Spain of 8 January 1963 as regards the treatment of successions.

The update is welcome, since it clarifies a number of points that were up in the air, notably:

1) Calculation of the effective rate: a long-awaited harmonisation

Tax conventions provide two main methods for avoiding double taxation: the tax credit method and/or the effective rate of taxation method.

The French-Spanish tax convention stipulates that each State retains the right to calculate the tax on inherited assets that are reserved to its exclusive taxation, at the rate that would be applicable if account were taken of all the assets that would be taxable according to its domestic legislation (Article 36).

This method of calculating the effective rate was detailed in the previous version of the comments on the French-Spanish convention. However, this method did not correspond to that detailed subsequently in general administrative comments (BOI-ENR-DMTG-10-50-70).

The new version harmonises the method, adopting that of the general doctrine, which is less favourable to taxpayers.

2) Nature of bank accounts: domestic tax treatment confirmed

The tax treatment of bank accounts in the context of the convention between France and Spain is a subject well known to international succession specialists, since it attests to the importance of classification in domestic law.

France considers that bank accounts belong to the category of “other intangible assets” which are taxable only in the decedent’s country of residence (Article 34). This point of view had been adopted in the Valleix ministerial response of 5 March 2001. This analysis was confirmed in the update of the administration’s comments.

A difference of opinion nonetheless remains between the French tax authorities, which consider these assets as intangible and taxable in the decedent’s place of residence, and the Spanish tax authorities, which consider these assets as tangible and taxable in the place where they are located.

This difference is therefore still likely to cause delays in the treatment of French-Spanish successions.

3) Sociétés civiles immobilières (“SCIs”, a special type of French company for owning and managing real estate): elimination of the reference to “stable establishment”

The former doctrine stipulated that, in the case of properties held by an SCI, any property exploited in accordance with the corporate object constituted a “stable establishment”.

There was therefore a risk that properties held by an SCI could be taxed in France as stable establishments.

This phrase is not used in the new comments. As a result, these “parts sociales” (roughly equivalent to shares) should fall within the category of “other intangible assets”, taxable only in the decedent’s country of residence (Article 34) in accordance with the case law of the Court of Cassation (see Cass., ass., plen. 2-10-2015 No. 14-14.256).

The treatment of SCIs therefore seems to be secured by the new doctrine.

By Guillaume Etain, Althémis Paris – France

Tags: France

Related Posts

keyboard_arrow_up