Legal news

In order to determine whether capital gains from disposals of fixed assets should be included in turnover, it is necessary to determine whether such disposals fit into the business model of the company.

Corporate taxpayers with a turnover of more than 250 million euros were taxed with an exceptional contribution equal to a fraction of this tax calculated on the basis of their taxable results for financial years closed between December 31, 2011 and December 30, 2016 (in accordance with Article 235 ter ZAA of the French General Tax Code, hereinafter CGI).

In deciding on the appreciation of the threshold for annual turnover in the case of a German company whose business in France consists in the administration and management of buildings on behalf of investment funds but that also realized capital gains on the sale of this buildings, the Council of State decided that:

– on the one hand, the threshold is appreciated by reference to revenue from all transactions carried out by the taxpayer in the course of his normal professional activity in France and abroad, regardless of the tax regime of the result of operations corresponding to this turnover;

– on the other hand, in order to determine whether the capital gains from the sale of real estate made by the company should be taken into account in the turnover, it is necessary to determine whether these disposals are part of the economic model of the company.

The case before the Council of State concerned a German company whose object was to provide regular rental income to investment funds. This company held several properties located in France, listed as assets on its balance sheet and leased. In addition to generating income from the rental of this property, the company realized a capital gain during its sale (selling ten buildings in 2011, three in 2012, two in 2013, five in 2014 and four in 2015). In particular, in 2011, sales almost ten times exceeded rental income.

Due to the recurring nature of the sales as well as their importance and quantity, the Versailles Administrative Court of Appeal, seized of the dispute, considered that the capital gain thus obtained should be included in the annual turnover of the company for its further imposition of the exceptional contribution (CAA Versailles, 1-6-2017).

Although the court considered that in order to be subject to an exclusive fee, only turnover related to profits taxed in France in accordance with Article 209 of the CGI should be taken into account, the Council of State, on the contrary, judged that should be taken into account the revenue from all operations carried out by the taxpayer in the course of his usual professional activities in France and abroad, regardless of the tax regime of the result of operations corresponding to this turnover.

It should be noted that in this way the Council of State confirmed the position already adopted in other cases (in particular, in the case of CE 9-12-2016). It follows in particular that the territorial rules provided for in respect of income tax should not be taken into account for the assessment of the threshold for turnover above which an exceptional contribution was due. It should also be taken into account that in respect of the exclusive contributions of large companies applicable to fiscal years closed between December 31, 2017 and December 30, 2018, drawn up in terms identical to the contributions in question, the administration, on the contrary, indicated that it would be advisable to maintain the turnover associated with corporate taxable profit in France in accordance with article 209 of the CGI. But it has not extended this solution either to the social contribution (CGI Art. 235 ZC) or to the exceptional contribution referred to in the present case (Art. 235 ZAA).

The inclusion of capital gains in the amount of turnover depends on the business model of the company.docx

The Court of Justice of the European Union (CJEU) considers that the losses of a non-resident subsidiary that have become definitive may be transferred within the tax integration of the integral parent company. For this reason, it is up to the latter to demonstrate that it is impossible for it to value these losses by ensuring, in particular by means of an assignment, that they are fiscally taken into account for future periods.

In France, the Montreux Administrative Court recently recognized that losses resulting from the liquidation of a non-resident subsidiary are imputed on the integrated tax result of a French parent company (TA Montreuil 17-1-2019).

By two decisions of June 18, 2019, the CJEU has recently clarified the possibility of transferring the definitive losses incurred by a non-resident subsidiary or sub-subsidiary to the parent company of the integrated group, thus reviewing the “Marks & Spencer” case law (CJUE 19-6-2019 aff. 607/17, Skatteverket c/ Memira Holding AB ; CJUE 19-6-2019 aff. 608/17, Skatteverket c/ Holmen AB).

The legal basis for the transfer of losses from one Member State to another

By a decision of the Grand Chamber in the case Marks & Spencer (CJUE 13-12-2005 aff. 466/03), the Court of Justice of the European Union held that the restriction on the freedom of establishment  by limitation of the right of a company to deduct the losses of a foreign subsidiary, while this deductibility is granted to a resident subsidiary, is justified by the need to maintain a balanced allocation of taxing powers between Member States and to prevent the risk of duplication of losses as well as tax evasion..

However, the Court clarified that this restriction would be disproportionate if the non-resident subsidiary has exhausted all possibilities of taking into account its own losses and if there is no possibility that such losses may be taken into account either by itself or by a third party through an assignment of the subsidiary to it.

After hesitations regarding the particular nature of the tax regime discussed in the case law of Marks & Spencer and the case law “X Holding BV” (CJUE 25-2-2010), the CJUE has raised the doubts of the doctrine and the scope of the case law created by the tax judge by means of two decisions concerning permanent establishments whose principles seem, mutatis mutandis, applicable to the subsidiaries (CJUE 12-6-2018 ; CJUE 4-7-2018).

In the “Bevola” case, the Court  in fact extends the Marks & Spenser solution to permanent non-resident loss-making establishment. But in the  “NN A / S” decision, which pursues the logic of the Marks & Spencer judgment, the Court applies this notion to a group of companies, including a non-resident subsidiary, considering this situation comparable to that of a purely national group.

In fact,  restrictions on the fundamental principle of freedom of establishment, the cornerstone of a single European market, do not in any way prevent the comparison of situations between different systems leading to the taking into account of losses between companies belonging to the same group (be it tax integration or loss exchange).

Regarding the judgment X Holding BV,  it concerned the conditions of access to the tax integration system, but did not address the issue of the definitive exclusion of non-resident companies with regard to the tax advantages enjoyed by the companies members of the integrated tax group. In this case, it was pointed out that the decision of the Dutch parent company not to include a non-resident subsidiary in its own tax integration, since the profit earned by this subsidiary was not subject to Dutch tax law was consistent compatible with European principles.

Tax integration and losses of European subsidiaries _ the _Mark and Spencer_ jurisprudence revisited.docx

Regulation of commercial leases provides that property tax, as well as fees and charges associated with the use of the premises (or the building in which such premises are located) or with the service used by the merchant, can be levied from him. That is the case, for example, of the tax on garbage collection. However, it is still necessary that the lease agreement expressly provides for it!

Thus, if, according to the commercial lease agreement, the burden of “deductions, taxes and expenses of all kinds related to the building” is on the merchant, however, this agreement does not specifically mention the tax on garbage collection, the merchant does not have to pay it.

Public authorities encourage homeowners to renovate their homes.

ENERGY TRANSITION TAX CREDIT

Expiring on 31 December 2018, the energy transition tax credit (ETTC) is finally extended by one year, i.e. until the end of 2019. This credit allows taxpayers to receive credit benefits on income tax on the costs of improving the environmental quality of their main place of residence if it was built more than 2 years ago.

In addition to this, the list of expenses that fall under the ETTC has been increased. Thus, the benefit of the tax credit is restored for the acquisition of thermal insulation materials for double glazing, replacing single glazing. Expenses for the installation of heating equipment using renewable energies, as well as the expenses paid for the removal of an oil tank, also became subject of the ETTC.

Moreover, it should be noted that the eco-loan at zero rate, that allows to finance work on the energy renovation of housing, has been extended until December 31, 2021. There is also a simplification of this mechanism: removal of the condition of work package, alignment of the condition of age of housing on that applicable to ETTC.

CENTRES-VILLES PLAN

Although the plan expired on December 31, 2018, the tax cut at “Censi-Bouvard” was extended for three years, that is, until the end of 2021.

It should be noted that this disposition allows some renters of furnished housing for non-professional purposes to enjoy the benefits of income tax for 9 years, the rate of which is set at 11% of the cost of housing, maintained at a rate of 300.000 euros per year (regardless of the number of housing) .

RENOVATION OF CITY CENTERS

The “Pinel” disposition on property tax exemption applies to old housing located in municipalities, where the need for the restoration of housing in the city center is particularly marked. In particular, taxpayers who purchase real estate from January 1, 2019 to December 31, 2021, restored or falling under restoration, can benefit from a tax reduction. It should be noted that these restoration work should be billed by companies, the amount of such bills should represent at least 25% of the total cost of the real estate transaction. However, the contours of the disposition still remain to be defined by decree and by-law.

It should be noted that the tax reduction is calculated on the cost price of housing (within certain limits) and at a rate that depends on the duration of the rental commitment chosen by the investor (12% for 6 years, 18% for 9 years or 21% for 12 years).

Real estate property

Contact us quickly to create your company in Romania!

The SRL (limited liability company), equivalent to the SARL in France, is the form of organization of a company most used in ROMANIA.

It has limited liability before the law and its owners.

It is also one of the safest arrangements for associates.

LLC “SRL” is also the cheapest way to set up a business with a share capital of 200 RON (about 45 EUR).

The creation of this type of company can be carried out within 3 working days following the filing of the file with the commercial register in the area where the registered office of the company is located.

Legislation of LLC “SRL” in ROMANIA

The law governing the acts and steps necessary for the establishment of the LLC “SRL” is the Companies Law no. 31/1990 – with amendments (Law no. 163/2018).

Furthermore, associations within an LLC “SRL” are only responsible for the registered assets of the company.

The number of partners is limited to 50.

However, a natural or legal person can be the sole shareholder.

Steps to follow for the creation of an LLC “SRL” in ROMANIA

In order to be able to create a LLC “SRL” in ROMANIA, the following steps must be taken:

• Establish the corporate purpose of the company;
• The main and secondary activities must be established in accordance with the classification of the “CAEN” code;
• You must reserve the name of the future company (once the verification on the Trade Register site has been made);
• Specify the legal form of the company, in this case a SARL “SRL”;
• You must establish the registered office of the company registered with the “ANAF” (provide proof of address such as a deed of ownership or lease);
• Draft the articles of association and deposit the share capital (minimum 200 RON or approximately 45 EUR) with a bank;
• Submit the entire file to the commercial register for the purposes of registration of the company.

The methods of taxation of an LLC “SRL” in ROMANIA

There are two tax options:

The LLC “SRL” will have to pay a 3% tax on turnover

For example, if a product or service is sold at 100 RON (approximately 22 EUR) + VAT (for companies subject to VAT) or at 100 RON final price (for companies not subject to VAT ), a tax of 3 RON (about 0.67 cents).

The payment of taxes is quarterly in the month following a calendar quarter.

The LLC “SRL” will have to pay a tax of 16% on the profit

The LLC “SRL” will have to pay a tax of 16% on the profit, i.e. the difference between income and expenses.

For example, if we have an income of 100 RON and expenses incurred to obtain this income, amounting to 90 RON, the profit is 10 RON and a quarterly tax of 1.6 RON will have to be paid.

In either case, after paying this tax to the state, you must also pay 16% dividend tax.

In order to decide which type of tax is right for your business, you need to calculate in advance the profit margins that you will be working on.

However, if you exceed a turnover of €65,000, you will automatically be included in the profit tax payment category.

The cost for the creation of a ROMANIAN LLC “SRL”

The cost for the creation can vary between 400 RON and 1000 RON or between 90 EUR and 225 EUR.

The cost of the domiciliation of a SARL

The cost of the domiciliation of a SARL varies between 150 and 300 EUR per year.

Contact us quickly to create your company in Romania!

The tranche of scale are overvalued by 1.6%

INCOME TAX SCHEDULE

The limits of the brackets of the scale of the income tax are revaluated by 1.6%. This rate corresponds to the projected price increase in 2018 excluding tobacco products. The scale applicable to income tax in 2018 is as follows:

It should be noted that the tax applied to current income (salary, property income ..) collected in 2018 will be compensated by the application of “modernization tax credit recovery”. Thus, with the goal of avoiding double taxation, in 2019 a tax credit will be applied after deduction of withholding tax.

LIMITATION OF THE EFFECTS OF FAMILY QUOTIENT

The family quotient is a system that corrects the progressivity of the income tax schedule for taxpayers entitled to more than one share, including taxpayers with one or more children.

However, the tax benefit resulting from the application of the family rate is limited for each half or quarter of the share, which is added to the two shares of taxpayers who are married or are in PACS and are jointly taxed, or to the share of single, divorced or married taxpayer taxed separately.

The general ceiling on the effects of the family quotient is raised, for the taxation of the 2018 income, from 1.527 EUR to 1.551 EUR for each half-share granted for family expenses, i.e. 775,50 EUR (against 763,50 EUR previously) by an additional quarter of a share.

In addition, specific marginal rates are applied to certain categories of taxpayers. As such, it should be noted that single, divorced or separated persons living alone and having at least one dependent child receive an entire share instead of a half-share. The tax benefit resulting from this share can not exceed 3.660 EUR for the taxation of 2018 incomes (compared to 3.602 EUR for the 2017 income).

INTEREST DISCOUNT

When the amount of the gross income tax resulting from the progressive scale is lower than a certain limit, an interest discount is applied to the amount of this tax, after application, if it is a case, of the of the family quotient.

For taxes on income in 2018, the limit of this discount has been increased to 1.196 EUR (compared to 1.177 EUR last year) for single, divorced or separated and to 1.970 EUR (against 1.939 EUR) for married persons or persons in the PACS subject to common taxation.

Remember that the amount of the discount is equal to the difference between its application limit and three quarters of the amount of the taxpayer’s gross tax contribution.

1.3. 20190215 Income tax