(French Administrative Supreme Court, Apr. 9, 2014, no. 358278, 3rd and 8th sub-sect., SCI du Forum)

A company - whose corporate purposes consists of (i) purchasing and reselling with the possibility to elect for the real estate dealers tax regime, and (ii) managing and operating immovable properties, notably under leases - purchased an immovable property under the real estate dealers tax regime.

In principle, immovable properties purchased under the real estate dealers tax regime are recorded as inventories. However, in the case at hand, the company recorded the property as a fixed asset. In addition, the property has been amortized and leased.

The French tax authorities challenged the depreciations booked by the company, arguing that the property could not have been recorded as a depreciable asset due to its acquisition regime.

The company argued that a change of destination has occurred regarding the property in order to justify the retained  accounting treatment.

The French tax authorities' position has been confirmed by the Nancy Administrative Court of Appeal, which ruled that the fact of having leased the property was not sufficient to qualify the property as an depreciable fixed asset. The French Administrative Supreme Court (Conseil d'Etat) did not challenge this position.

Furthermore, the Nancy Administrative Court of Appeal ruled that the property's change of destination could only result from an express decision taken by the company's competent statutory bodies and that, in the case at hand, no change could be recognized as no express decision had been taken in that respect. The French Administrative Supreme Court did not follow the Court of Appeal's decision on this specific issue. Indeed, the French Administrative Supreme Court considered that the Court of Appeal has made an error of law by ruling that the change of destination should require an express decision taken by the company's statutory bodies. The Administrative Court of Appeal should have determined if, in the light of all the circumstances at stake, the company had demonstrated its intention to change the destination of the property initially acquired to be resold.

For this reason, the French Administrative Supreme Court overturned the Nancy Administrative Court of Appeal's decision and remitted the case to the Nancy Administrative Court of Appeal to determine the company's intention regarding the destination of the property.