(Paris Administrative Court of Appeal, Feb. 13, 2014, no. 12PA03868)
After European Union (hereinafter “EU”) law, it is now international tax treaties that are destabilizing one third (33,1/3) withholding tax, which applies to real estate capital gains of non-residents.
In this case, in 2009, a Swiss tax resident sold his shares in a real estate oriented company (société à preponderance immobilière) whose assets were properties in France. The capital gains resulting from the share deal had been subject to the 33, 1/3% withholding tax in France, as provided in Article 244 bis A of the French Tax Code. After a claim was turned down, the taxpayer filed a petition with the administrative court of Paris for a partial discharge of the capital gains. He argued that Article 15 § 4 of the France-Switzerland Tax Treaty prevented application of a higher tax rate than the 16% reduced rate, which was applicable at that time for French residents (now 19%), to real estate capital gains.
The Administrative Court, followed by the Paris Administrative Court of Appeal ruled in his favor, stating that the withholding tax was not compatible with Article 15 § 4 of the France-Switzerland Tax Treaty. Indeed, Article 15 § 4 provides that, “The gains from the alienation of property mentioned in the paragraphs 1, 2 and 3 [i.e real estate or shares, units or others rights in a real estate oriented company], determinative for the application of the tax on capital gains, are determined in the same manner, irrespective whether the recipient is a resident in one or the other Contracting State. If these gains are subject to a tax as a substitute for the ordinary individual or corporate income tax the tax must be determined in the same manner, irrespective whether the recipient is a resident in one or the other Contracting State ”. (J'ai repris exactement les termes de la convention franco Suisse rédigée en anglais pièce jointe (IBFD)
The Court of Appeal deduced from this equal treatment clause that, for a Swiss tax resident, the tax rate of real estate capital gains subject to a withholding tax with a discharge in France cannot exceed the tax rate applicable to a French tax resident. In this respect, only the reduced rate could apply.
Moreover, the Court of Appeal stated that the scope of Article 15 § 4 cannot be expanded over the two taxes expressly designated (income tax and corporate income tax). As a result, the fact that French tax residents are also subject to social contributions (CSG, CRDS, etc.) has no effect on a taxpayer who is a Swiss tax resident. Therefore, the tax authorities are not entitled to claim social contributions on real estate capital gains made by this Swiss tax resident.
This decision is clearly in line with the case law of the French Administrative Supreme Court (see in particular the Court’s decision of November 20, 2012, no. 361167), and it appears to confirm that the one third withholding tax has come to an end.