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A new argument against the withholding tax of article 119 bis of the CGI

In an important case that gave rise to a favorable decision by the Administrative Court of Bordeaux on January 26, 2021 (n° 1903677), which the administration did not appeal, was at stake an alleged liberality granted by the French subsidiary of a Chinese group to a sister company in the British Virgin Islands that the administration had subjected to the withholding tax under article 119 bis of the CGI. Alain Frenkel raised a new question regarding the application of the administrative doctrine. Indeed, the French “BOFiP” has consistently stated since 2012, in its commentary on hidden remuneration and distributions, that the latter “escape any withholding tax” (RPPM-RCM-10-20-20-40, § 30). However, this statement is contradicted by the commentary on withholding tax, which states that “withholding tax may be applied to hidden benefits granted to third parties (…) on the basis of the provisions of c of article 111 of the CGI” (RPPM-RCM-30-30-10-10, § 70).

The Cabinet Frenkel & Associés argued that the taxpayer could rely on the first of these interpretations, which was favorable to him, since it was set out in an autonomous part of the “BOFiP” and was, moreover, sufficient – since it did not, by definition, need to be supplemented by the comments relating to the terms and conditions for applying the withholding tax.

Insofar as the taxpayer obtained total satisfaction on another ground, that of the statute of limitations, this argument has not been judged, but would be worth raising in other litigation.

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