Safe Harbor On The French CFC rules
The new French CFC rules have safe harbors that should be
taken note of. Basically it falls under two categories, one is the no
sheltering effect and the other is the European Union Exclusion. Let’s
get to up close and personal with each safe harbor.
The No Sheltering Effect
The issue with the general provisions of the article 209
B is that it is drafted so broadly that it could have affected
legitimate and rightful commercial transactions. To be able to prevent
that effect, a specific condition evidently gives that the CFC rules
should not be applicable if the income of the foreign legal entity came
from processes that are effectively done from where the entity is
established or country of establishment.
However, you must take note that this immunity is not
applicable if the income of the foreign legal entity amount up to 20
percent or possible more from financial assets management or intangible
rights. It is also not applicable if there is a 50 percent or more from
income derived from intangible rights and financial asset management
plus intercompany services. If these conditions are present, the tax
payer needs to prove and show that the employment of foreign legal
entity did not have its chief objective taking advantage of a special
tax rule.
The European Exclusion
The new French CFC rules are not applicable to incomes
that came from entities included in the European Member States. This is
with the exception if the tax administration is able to show and prove
that the employment of the European Union Company is just an artificial
or fake scheme that is established to avoid and circumvent the French
Tax rules.
These rules are specifically created to prevent
litigation or legal action regarding the conformity of the new article
209 B with the liberty of establishment given by article 43 of the EC
Treaty that creating the European Community. Together with the exclusion
and exception to it are in fulfillment with the case law of the European
Court of Justice.
These rules also indicate that if a foreign entity is
incorporated in a European Union Country, it could be protected on the
grounds of article 209 B. this is even if a tax treaty specifically
gives for the application of article 209 B. it indeed allows for the
subsidiary standard of the tax treaty that was stated under French law.
If the domestic law avoids any taxation on such reasons, the addition in
the tax treaty of a provision for the application of article 209 B is
useless.
|
