Global Tax Alert | 30 December 2013

French Finance Bills finally enacted but certain provisions censored by the Constitutional Court

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Executive summary

On 29 December 2013, the French Constitutional Court rendered its decisions on the provisions of the 2014 Finance Bill and the 2013 Amended Finance Bill that certain members of Parliament had asked it to censor.

The Bills were published in their revised and final form in the official gazette (Journal Officiel) on 30 December 2013, and thus entered into force.

Censored provisions

The French Constitutional Court struck down some of the provisions,1 mainly on the grounds of their disproportionate nature or their lack of clarity. They include:

  • The widening of the scope of the general anti abuse rule from “exclusively” to “mainly tax driven” transactions. The Court found this to leave too much room for interpretation by the tax authorities, considering the significant penalties applicable under the general anti abuse procedure.
  • The mandatory disclosure of tax planning schemes. The definition of “tax planning scheme” was considered not to be precise enough given the restrictions to the freedom of enterprise and the significant penalties it entailed.
  • The increase of penalties for the failure to comply with transfer pricing documentation requirements from 5% of the transfer pricing reassessment to 0.5% of the turnover. The turnover based penalty was considered to be out of proportion with the sanctioned behavior.
  • The shift of the burden of proof to the taxpayer in the case of business restructuring. It was ruled that both the “transfer of functions and risks” triggering the reversal of the burden of proof, and the “profits that should have been made in the future” on which the reassessment would be based, were insufficiently defined, and that certain references in the provision were inconsistent.

Provisions upheld by the Court

Among the remaining provisions,2 the following were reviewed but upheld by the Court:

  • The limitation on deductibility of interest accrued to low taxed related party lenders. The plaintiffs had argued it was unclear, discriminating, and lacked proper justification for being retroactive. None of these arguments were upheld by the Court.
  • Although the Court considered that the requirement to provide accounting statements and consolidated accounts in case of a tax audit was compliant with privacy rights and the freedom of enterprise, it invalidated the main parts of the article which sets the penalties applicable in case of non-compliance with this requirement, on the grounds that these penalties were out of proportion with the sanctioned behavior.
  • The communication of tax rulings from foreign tax authorities obtained by associated companies as part of the transfer pricing documentation. In response to the plaintiffs' contention, the Court found that this provision did not have “the purpose nor the effect” to require the communication of a document that the French taxpayer would not have at its disposal.
  • The repeal of the possibility for French companies to postpone the payment of taxes resulting from transfer pricing reassessments in case of mutual agreement procedures. The Court considered it did not violate the right to an effective legal remedy.
  • The exceptional solidarity surtax on remunerations exceeding €1m. It was ruled that a rate of 50% did not impose a disproportionate burden on the employer, even when taking into account payroll taxes (of generally 25% but sometimes more). The Court noted that, contrary to the personal income tax surtax that was proposed and censored in late 2012, the new solidarity surtax could not be seen as confiscatory for the private individual recipients of income. It also considered that the tax basis was sufficiently wide not to be found discriminatory, although it does not apply to self-employed individuals. However, the Court's decision is explicitly based on the temporary nature of the tax (applicable to remunerations paid in 2013 and 2014).


1. For additional details, see EY Global Tax Alert, France's Parliament approves 2014 Finance Bill and Amended 2013 Finance Bill, dated 20 December 2013.

2. For additional details, see EY Global Tax Alert, France's Parliament approves 2014 Finance Bill and Amended 2013 Finance Bill, dated 20 December 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, French Tax Desk, New York
  • Frédéric Vallat
    +1 212 773 5889
  • Daniel Brandstaetter
    +1 212 773 9164
  • Pierre-Eric Coquard
    +1 212 773 7318
Ernst & Young LLP, Financial Services Desk, New York
  • Sarah Belin-Zerbib
    +1 212 773 9835

EYG no. CM4067