News 11 DECEMBER 2015
Partial non-compliance with the undertaking to resell:
The French Tax Administration now also has to apply its own doctrine to previous operations!
Article 1115 of the French Tax Code (FTC) provides that every person subject to VAT (i.e. those carrying on an economic activity) that acquires a property may benefit from a reduced rate of regulation duty (0.715% instead of 5.09/5.81%) if they undertake to resell it within a five year period from its acquisition.
In April 2011, following to the reform of the "property dealer" regime (undertaking to resell possible for all taxable persons, not just property dealers, with the deadline for resale extended to 5 years), the French Tax Administration amended its doctrine, in particular by introducing special rules in the event of partial non-compliance with the undertaking to resell.
This mainly occurs in cases where a buyer acquires a whole property and resells it in lots.
In the past, where the whole of the real estate asset acquired under an undertaking to resell was not resold within the time limit, the proportion of the purchase price subject to additional tax was determined by reference to the non-resold surfaces.
Under the new doctrine, introduced in 2011, the resale price of the lots sold within the deadline is compared to the acquisition price of the real estate. → Only the potential negative difference will then be subject to additional tax.
This doctrine is generally more advantageous than the previous one as, once lots are sold at a price higher than the purchase price, the partial resale of the property will not entail payment of additional tax or at least mean less additional tax than would have been due if the surfaces had been retained.
The French tax authorities however held that their new doctrine was only applicable to acquisitions made on or after 11 March 2010, the date on which the reform of the “property dealer” regime took effect.
In two judgments, the Courts of First Instance of Nanterre and Paris have recently taken the opposite position, ruling that a more favourable administrative doctrine should apply to current situations as of the day it is published. Moreover, they considered that the doctrine in question did not result from the legislative amendments of 2010 (deadline for resale, concept of a taxable person, etc.), thus its application to situations current in 2011 would not give retroactive effect to the law of 2010.
As a result, the doctrine is now applicable to properties acquired after March 2006, for which the time limit expired in March 2011 (given that the extension of the deadline from 4 to 5 years applied to properties for which the deadline of 4 years was running in 2010), and even to older situations where the collection notice was issued after 18 April 2011 (date of publication of the administrative doctrine).
In practical terms this means that, for the operations concerned:
- either they are not subject to additional payment and, in the event of an adjustment, the taxpayer must ensure that the Tax Administration uses the proper calculation method;
- or they areb subject to additional payment - either spontaneously or following proceedings by the French Tax Administration - and, if the deadline for objections has not expired, the taxpayer may file a claim for application of the new doctrine.
- Finally, it is worth bearing in mind that, in the event of a tax adjustment, a new deadline for claims will begin. On these grounds, therefore, a new claim may in most cases be made for operations giving rise to an adjustment from 2011 onwards.