We are pleased to share with you the favorable French Constitutional Court decision that we have obtained with respect to the Business Tax cap mechanism (decision reference: QPC 2014-413, September 19, 2014).

The law at hand (Article 1647 B Sexies II last § of the French tax code), which concerns mainly taxpayers disposing of significant real estate assets, significantly increases the Business Tax burden of those who implement a reorganization transaction (contribution, merger, sale of business, etc.) in comparison to those which do not carry out such type of transactions.

This law was judged unconstitutional as it created a difference of treatment between taxpayers which was not consistent with the objective pursued by Parliament. Such objective was merely to neutralize the impact of these transactions in terms of Business tax, and not to penalize the taxpayers who perform them. The mechanism created by the law to achieve that goal did not therefore allow to reach it.

The Constitutional Court created an interesting opportunity for taxpayers by stating that its decision could benefit to taxpayers to which the law at hand was applied but that had not filed a claim yet.

It could thus be useful for taxpayers to verify if they have performed reorganization transactions during prior fiscal years and if the Business Tax cap mechanism was applied to them; this, in order to obtain an incremental Business Tax repayment by a claim which may need to be filed before December 31, 2014, depending on the date of the reorganization performed by the company.

Finally, given the timing effect provided by the Constitutional Court in its decision, the Parliament will have until January 1, 2015 to enact new legal provisions ensuring the neutrality of these transactions for Business Tax purposes.

You can find a French version of the decision here