Guidance on the anti-abuse rules is becoming… slightly clearer!

Transposing Article 6 of the ATAD Directive, Article 205 A of the French General Tax Code provides for a new general anti-abuse rule for corporation tax, under which no account is taken, while assessing the amount of a corporation tax liability, of the tax consequences of an arrangement or a series of arrangements:

• the main purpose or one of the main purposes of which is to obtain a tax advantage that defeats the object or purpose of the applicable tax law, and which
• is not genuine having regard to all relevant facts and circumstances.

In an update to its administrative comments (BOFiP database) on 3 July 2019, the tax authorities commented on these provisions by largely replicating their guidance on the former anti-abuse rule specific to the parent-subsidiary regime, the abuse of which is now covered by the general anti-abuse rule. 

This guidance states that this article applies to financial years beginning on or after 1 January 2019, regardless of the date on which the operation or arrangement was put in place.

The tax authorities consider that the main purpose of an operation will be assessed by considering the facts and in particular taking account of the evaluation of the tax advantage. To the extent possible, proportionality must be established between the various advantages obtained.

Such an assessment will be practically difficult, particularly where, inter alia, legal, organisational and reputational advantages need to be quantified. In the event that a quantitative comparison of the various advantages is impossible, it seems that it will need to be established whether obtaining a tax advantage constitutes the principal purpose of the transaction. This concept is also yet to be defined, but it is conceivable that it may refer to an objective in the absence of which the transaction would not have been carried out.

An arrangement or series of arrangements is genuine where it can be economically justified, not only by reference to a commercial activity but also by reference to the ownership of assets or the exercise of financial activities.

Finally, the tax authorities have shed some light on how these provisions will interact with other anti-abuse rules (in particular those set out in Articles L. 64 and L. 64 A of the tax procedures handbook and Article 210-0 A, III of the French General Tax Code), which may be summarised as follows:

The exclusion of corporation tax from the new principal abuse of law procedure raises questions. It should be noted that, from 1 January 2021 onwards, all transactions entered into or carried out after 1 January 2020 may be challenged by the tax authorities under the “mini-abuse of law” rule that allows them to disregard transactions the main purpose of which is the avoidance or mitigation of a tax liability, but that seek the benefit of a literal application of the law or decisions at variance with the objectives of those carrying out the transactions. However, this procedure will come with significant procedural guarantees (in particular the ability to refer the matter to the Tax Law Abuse Committee) that are not available to taxpayers whose transactions have been reassessed under the general anti-abuse clause, even though the sanctions and penalties that may apply in both cases (40% for deliberate breaches and 80% for fraudulent activity) are identical.

This difference in treatment between the two procedures therefore raises certain questions that may be the subject of discussions over the next few months.