Tax Treaty Case Law around the Globe 2018

S. 9Chapter 2 France: Tax Treaty Abuse as Fraus Legis

Marilyne Sadowsky

2.1. Introduction

This decision of the French Council of State released on 25 October 2017 (396954, Cts Verdannet) deals with the question of whether the general anti-avoidance rule (GAAR) of article L 64 of the French Tax Procedure Code (FTPC) applies to tax treaties. By responding in the affirmative, the Supreme Court removed the remaining ambiguities created by former case law on this issue and raised interesting questions regarding fraus legis, domestic rules, tax treaties and states’ intention.

2.2. Facts of the case

Mr Verdannet is a French tax resident. One day, on 30 December 2003, he decided to sign a promise to purchase some buildings in France and, on the same day, to create a Luxembourg holding company, “Partinverd”. Mr Verdannet was the managing partner of this company as he held 99.99% of the shares. A month later, in January 2004, an amendment was made to the contract to substitute a new buyer. Which is why in July 2004, the Luxembourg company was substituted for Mr Verdannet in the purchase of these buildings, for EUR 2,908,836. In November 2005, following the amendment allowing the company to cover the ...