The Franco-Swiss tax treaty prevents a French company with a preponderance of real estate assets from being subject to French wealth tax
The tax authorities were considering taxing a Swiss resident who held a large property in France through intermediary companies, one of which was French. Frenkel & Associés argued that, although it could not be disputed that the French company had a preponderance of real estate assets, the Swiss resident escaped any taxation in France insofar as the properties outside France held by the other companies had a much higher value than the French property.
The treaty concluded with Switzerland provides for a specific system of taxation of companies with a preponderance of real estate assets, inspired by the system applicable to real estate in the strict sense of the term. The stipulations of the second paragraph of Article 24(1) state that “capital represented by shares or other rights in a company, trust or comparable institution, the assets or property of which consist principally, directly or indirectly, of immovable property as defined in paragraph 2 of Article 6 and situated in a Contracting State, or rights relating to such property, may be taxed in that State“. This provision should be read in conjunction with the “catch all clause” contained in the last paragraph of the same Article, which provides that “all other elements of the capital of a resident of a Contracting State shall be taxable only in that State“.
In the light of these stipulations, it is clear that, in the case of a Swiss resident, the company’s assets as a whole should be taken into account in order to determine whether they consist mainly of property located in France. If this is the case, all of the assets fall within the scope of French tax jurisdiction – even if some of the property is located in Switzerland. On the other hand, if the real estate assets are mainly located in Switzerland or outside France, all of the assets fall outside French tax jurisdiction – including when assets are located in France.
The tax authorities were considering taxing a Swiss resident who held a large property in France through intermediary companies, one of which was French. Frenkel & Associés argued that, although it could not be disputed that the French company had a preponderance of real estate assets, the Swiss resident escaped any taxation in France insofar as the properties outside France held by the other companies had a much higher value than the French property.
The treaty concluded with Switzerland provides for a specific system of taxation of companies with a preponderance of real estate assets, inspired by the system applicable to real estate in the strict sense of the term. The stipulations of the second paragraph of Article 24(1) state that “capital represented by shares or other rights in a company, trust or comparable institution, the assets or property of which consist principally, directly or indirectly, of immovable property as defined in paragraph 2 of Article 6 and situated in a Contracting State, or rights relating to such property, may be taxed in that State“. This provision should be read in conjunction with the “catch all clause” contained in the last paragraph of the same Article, which provides that “all other elements of the capital of a resident of a Contracting State shall be taxable only in that State“.
In the light of these stipulations, it is clear that, in the case of a Swiss resident, the company’s assets as a whole should be taken into account in order to determine whether they consist mainly of property located in France. If this is the case, all of the assets fall within the scope of French tax jurisdiction – even if some of the property is located in Switzerland. On the other hand, if the real estate assets are mainly located in Switzerland or outside France, all of the assets fall outside French tax jurisdiction – including when assets are located in France.