Abuse of Law France and Letter Box Companies

By Prof Robert Anthony, Anthony & Cie

I would just like to offer you a few thoughts concerning the evolution of legislation. As in many countries, France has been tightening up its laws to stop taxpayers from manipulating their affairs to avoid tax.

In the Finance Act, France introduced a modification to Article L64A. The idea is to create a real nature of transactions. The French tax administration will now have the right to opposition transactions/contracts, which create abnormal trading with a clear motive to avoid tax. It basically means that with the creation of letter box companies with no trading substance, artificial agency agreements can be put into question and regardless of transfer pricing or base erosion profit sharing, the revenue can object to a transaction which is purely for tax evasion.

Where the taxpayer disagrees with the revenues assessments based on the new law, one has the right to defend one's case in the usual manner. It will apply from 1 January 2020, so any amendments will apply starting with the civil year, on 1 January 2021.

The interesting aspect of this new law is to stop treaty shopping to reduce taxation on dividends. Controlled foreign corporations within the EU are already becoming confused. While the UK does not generally deduct withholding taxes on the distribution of dividends, one needs to consider the tax treaties also the reverse way. There are 27 other countries in the EU including, of course, France. Many clients and French people have used UK holding companies as well as trading companies with no UK activities. They have not necessarily declared their income where it should be declared. This clause can put into question the definition of a permanent establishment in this type of situation.

Prof Robert Anthony

Prof Robert Anthony

Anthony & Cie, Valbonne, Sophia Antipolis, France
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Published: March 2019 l Photo: Boris Stroujko -

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