An interesting issue of retroactive option for a preferential regime
In December 2021, the firm closed an important case resulting from a long tax audit with a global settlement satisfying all parties. The case involved a company operating passenger ships with its registered office in Luxembourg, but which operated all its ships in France under the French flag through various subsidiaries. Given the lightness of the company’s establishment in Luxembourg, the administration considered that its effective centre of management was in France and/or that it had a permanent establishment there and intended to link all its results to French tax jurisdiction.
In Luxembourg, the company benefited from an investment tax credit scheme which meant that it had a very low tax burden. But the same would have been true in France if the company had opted – like all shipowners – for the favourable tonnage tax regime introduced into our positive law in 2002 (Art. 209-0-B of the CGI), which allows for a reduced flat-rate taxation of the results of the operation of ships operated at sea.
In its negotiations with the administration, the firm therefore argued that the company had made a mistake in setting up in Luxembourg to carry out its shipowning activity there and that it could therefore benefit from the right to error recognised by the case law of the Conseil d’Etat (and in particular CE, plen., 7 December 2015, no. 368227, Min. c/Sté Frutas y Hortalizas Murcia SL). It therefore argued that the ten-year statute of limitations applicable to concealed activities could not be applied, that the right to recover should be limited to 3 years and that any rectifications should not bear the 80% penalty.
At the same time, and in the alternative, the firm argued that the company could retroactively opt for the tonnage tax regime by way of a claim for the entire period concerned by the ten-year statute of limitations, relying on the Sicli decision of 11 May 2015 (no. 372924), in which the Conseil d’Etat ruled that a taxpayer can always request, by way of a claim, to benefit from a favourable regime for which he would not have opted within the time limit.
As this last question may be of interest to other taxpayers in similar situations, we are making available to them the arguments we have developed in response to the Service’s objections.
In December 2021, the firm closed an important case resulting from a long tax audit with a global settlement satisfying all parties. The case involved a company operating passenger ships with its registered office in Luxembourg, but which operated all its ships in France under the French flag through various subsidiaries. Given the lightness of the company’s establishment in Luxembourg, the administration considered that its effective centre of management was in France and/or that it had a permanent establishment there and intended to link all its results to French tax jurisdiction.
In Luxembourg, the company benefited from an investment tax credit scheme which meant that it had a very low tax burden. But the same would have been true in France if the company had opted – like all shipowners – for the favourable tonnage tax regime introduced into our positive law in 2002 (Art. 209-0-B of the CGI), which allows for a reduced flat-rate taxation of the results of the operation of ships operated at sea.
In its negotiations with the administration, the firm therefore argued that the company had made a mistake in setting up in Luxembourg to carry out its shipowning activity there and that it could therefore benefit from the right to error recognised by the case law of the Conseil d’Etat (and in particular CE, plen., 7 December 2015, no. 368227, Min. c/Sté Frutas y Hortalizas Murcia SL). It therefore argued that the ten-year statute of limitations applicable to concealed activities could not be applied, that the right to recover should be limited to 3 years and that any rectifications should not bear the 80% penalty.
At the same time, and in the alternative, the firm argued that the company could retroactively opt for the tonnage tax regime by way of a claim for the entire period concerned by the ten-year statute of limitations, relying on the Sicli decision of 11 May 2015 (no. 372924), in which the Conseil d’Etat ruled that a taxpayer can always request, by way of a claim, to benefit from a favourable regime for which he would not have opted within the time limit.
As this last question may be of interest to other taxpayers in similar situations, we are making available to them the arguments we have developed in response to the Service’s objections.