In a recent decision, the French Administrative Supreme Court has clarified the conditions for applying the tax transparency regime to the French "sociétés civiles immobilières d'attribution" (a type of tax look-through entity described in the French Tax Code: a "real estate co-ownership company").
The legal question put to the French Administrative Supreme Court was to determine whether a tax transparent entity having dual activities of construction and rental, could benefit from the tax transparency regime.
After having pointed out that a company’s corporate purpose must be assessed with respect to its effective activity, the Court ruled that, insofar as a company has no corporate purpose other than those mentioned in Article 1655 ter of the French Tax Code (namely those of a real estate co-ownership company) the fact that the company has several of these corporate purposes does not make it lose the benefit of the tax transparency regime, if the conditions in Article 1655 ter are satisfied for each corporate purpose.
This unprecedented position overruled the decisions of the lower courts, which had ruled that the company conducted a dual activity, construction and rentals, and that this corporate purpose was not among the individual purposes provided for in Article 1655 ter. The French Administrative Supreme Court found that the Administrative Court of Appeal had committed a legal error in that it had not sought to determine whether the rental activity was conducted pursuant to the shareholders' decision, such that it also constituted an activity that was compatible with the tax transparency regime. In this respect, the French Administrative Supreme Court pointed out that it is only if the rental activity was conducted on the company’s own behalf that the company would have lost the benefit of its tax transparency regime.