CJEU – Recent Developments in Direct Taxation 2019

1. S. 250Introduction

Three cases are to be discussed, involving the compatibility of French tax law with European Union primary and secondary law. The AQ and DN v French Republic cases raise the compatibility with the Merger Directive of the taxation deferral of a capital gain realized on an exchange of shares. The second case, Société Générale v French Republic, deals with the compatibility with the freedom of capital movement of the double-taxation avoidance mechanism, also known as the “butoir” rule, provided by the tax treaties concluded by France.

2. The AQ (C-662/18) and DN (C-672/18) v French Republic cases

2.1. Background

Pursuant to the French Finance Bill for 2013, capital gains have since been taxed at the proportional rate of 16% but are still subject to the domestic income tax brackets mechanism, with the possibility of benefiting under certain conditions from a reduction of the tax base according to the period for which the securities have been held.

The Conseil constitutionnel (Constitutional Court, France) approved the denial of this reduction in the case of a capital gain that benefited from the taxation deferral before the entry into force of the new regime in 2013. However...