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Case:
CE, Ass. Case Minister c/ Schneider Electrique
Date:
28 June 2002
Translated by:
J.T. Brown
Copyright:
Professor B. S. Markesinis

CE, Ass.
Case Minister c/ Schneider Electrique

In view of the appeal of the Minister of Economy, Finances and Industry, filed on 6 April 2001 with the secretariat of the Court of the Council of State; the Minister asks the Council of State to quash the judgement dated 30 January 2001 by which the Paris Administrative Appeal Court quashed the judgement dated 13 February 1996 of the Paris Administrative Court and discharged Schneider, a corporation, now Schneider Electric, from the supplementary corporation tax imposed upon it in respect of the year 1986;

(…)

Given that (1) the case papers brought before the court of first instance show that at the conclusion of an audit of its accounts Schneider, now Schneider Electric, was subjected in respect of the year 1986, and pursuant to the provisions of Article 209 B of the General Tax Code, to supplementary corporation tax by reason of the results of its Swiss subsidiary Paramer; (2) the Paris Administrative Appeal Court, by a judgement dated 30 January 2001, quashed the judgement of the Paris Administrative Court dated 13 February 1996 and discharged Schneider Electric from this tax, on the grounds that the provisions of Paragraph 1 of Article 7 of the Franco-Swiss Tax Treaty of 9 September 1966, amended by the Supplementary Agreement of 3 December 1969, constitute an obstacle to the application of Article 209 B of the General Tax Code; and (3) the Minister appeals against this judgement;

Given that (1) although a bilateral treaty entered into with the aim of avoiding double taxation may, pursuant to Article 55 of the Constitution, result in excluding national tax law on particular points, it cannot, of itself, serve as a legal basis for a decision relating to taxation; (2) consequently, it is the duty of a tax court seized of a dispute concerning such a treaty, to place itself in the point of view of national tax law to see whether, from this angle, the disputed tax has been properly established, and, in the affirmative, on the grounds of which tax analysis; and (3) it is then its duty, as the case may be, to compare this analysis with the provisions of the Treaty and to determine – depending on the arguments pleaded before it or even, if the field of application of the law falls to be determined, on its own initiative - whether this treaty is or is not an obstacle to the application of tax law;

Concerning national tax law:

Given that according to paragraph I of Article 209 B of the General Tax Code in its version applicable to the disputed taxation: “ If a business which is subject to corporation tax holds, directly or indirectly, at least 25% of the shares of a company established in a foreign State or a territory outside France whose tax system is favourable within the meaning of Article 238 A, such business is subject to corporation tax on the profits of that foreign company in an amount proportional to the securities it holds./ Such profits are taxed separately. They are deemed to be received on the first day of the month following the end of the financial year of the foreign company and are calculated in accordance with the rules set out in this Code./ Tax paid locally by the foreign company may be imputed in the proportion mentioned in the first paragraph provided however that such tax is comparable with the corporation tax”;

Given that the very terms of these provisions show that they aim to allow the taxation in France of profits arising from the exploitation of a company established abroad and not, contrary to the pleadings of the Minister, profits deemed to be distributed by that company to its French resident shareholder;

Concerning the significance of the Franco-Swiss Tax Treaty for the application of Article 209 B of the General

Tax Code:

Given that (1) pursuant to the terms of paragraph 1 of Article 7 of the Franco-Swiss Tax Treaty: “ The profits of a business of a Contracting State are taxable only in that state, unless the business carries on its activity in the other Contracting State by means of a permanent establishment situated there”; (2) the expression “profits” mentioned in Article 7 of the Franco-Swiss Tax Treaty is not defined by that Treaty and must therefore be interpreted following the principle set out in paragraph 2 of Article 3 of that Treaty, which provided: “For the application of the Treaty by a Contracting State, any term which is not otherwise defined has the meaning given to it by the legislation of that State which governs the taxes dealt with by the Treaty, unless the context requires a different interpretation”; (3) in the absence of any element requiring another interpretation, the “profits” to which Article 7 of the Treaty refers are those determined by applying the rules laid down by the General Tax Code; and (4) consequently, the Court did not commit a mistake of law when it held that there is identity in kind between the profits of Paramer whose taxation is attributed to Switzerland by paragraph 1 of Article 7 of the Franco-Swiss Tax Treaty and the profits of Paramer taxed in France in the name of Schneider on the basis of Article 209 B of the General Tax Code;

Given that, even if it were shown that an aim of fighting tax evasion had been given to the Franco-Swiss Treaty, such aim does not, in the absence of any specific provision laying it down, permit any derogation from the rules set out by that Treaty;

Given that it follows from the above that the administration has no grounds to argue that the Paris Administrative Court, by the judgement under attack, which is sets out sufficient reasoning, wrongly quashed the judgement dated 13 February 1996 of the Paris Administrative Court and discharged Schneider from the supplementary corporation tax to which it was subjected for the year 1986;
(…)

DECIDES:

Article 1: The appeal of the Minister of Economy, Finance and Industry is rejected;
(…)

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