Arsene Taxand - Real Estate
The 3% tax is to be 'touched up'
November 13 2007
In a decision of October 11, 2007 (in the "Elisa" case), the ECJ held that the existence of an additional condition to be met by non-residents as compared with French residents in order to be able to benefit from an exemption from the 3% tax was incompatible with the free movement of capital.

According to the information we have, the French Ministry of Finance is on the point of drawing the conclusions from this decision in the Amended Finance Bill and would make various amendments to Articles 990 D et seq. of the French Tax Code relating to the 3% tax on this occasion. At this stage, the main positive changes expected are as follows:

- A clearly specified field of application specifically aimed at trusts (fiducies or comparable institutions).

- Application of an exemption threshold in order to exclude from the scope of the tax investors with a portfolio invested in several countries and consisting essentially of foreign assets (at this stage, for French real estate assets representing less than 5% of the total market value of all the real estate assets held), exclusion of investors holding an investment of less than 1% in the holding structure (fund).

- Direct extension of the exemption to both French and foreign real estate investment funds (FPIs).

- Identical treatment for French companies and legal entities with their headquarters in an EU Member State with regard to the cases for exemption.

On the other hand, and pending confirmation, the exemption would only be available in those States which have entered into a tax treaty with France containing an administrative assistance clause or an information exchange clause. In principle, this exclusion would mainly affect Swiss investors. However, as stated above, this point still remains to be confirmed.

The final provisions have not yet been adopted and more changes will probably be made following the presentation of the Amended Finance Bill for 2007. We will keep you informed of forthcoming developments.

The 3% tax is to be 'touched up'

Arsene Taxand - Real Estate



The 3% tax is to be 'touched up'
In a decision of October 11, 2007 (in the "Elisa" case), the ECJ held that the existence of an additional condition to be met by non-residents as compared with French residents in order to be able to benefit from an exemption from the 3% tax was incompatible with the free movement of capital.

According to the information we have, the French Ministry of Finance is on the point of drawing the conclusions from this decision in the Amended Finance Bill and would make various amendments to Articles 990 D et seq. of the French Tax Code relating to the 3% tax on this occasion. At this stage, the main positive changes expected are as follows:

- A clearly specified field of application specifically aimed at trusts (fiducies or comparable institutions).

- Application of an exemption threshold in order to exclude from the scope of the tax investors with a portfolio invested in several countries and consisting essentially of foreign assets (at this stage, for French real estate assets representing less than 5% of the total market value of all the real estate assets held), exclusion of investors holding an investment of less than 1% in the holding structure (fund).

- Direct extension of the exemption to both French and foreign real estate investment funds (FPIs).

- Identical treatment for French companies and legal entities with their headquarters in an EU Member State with regard to the cases for exemption.

On the other hand, and pending confirmation, the exemption would only be available in those States which have entered into a tax treaty with France containing an administrative assistance clause or an information exchange clause. In principle, this exclusion would mainly affect Swiss investors. However, as stated above, this point still remains to be confirmed.

The final provisions have not yet been adopted and more changes will probably be made following the presentation of the Amended Finance Bill for 2007. We will keep you informed of forthcoming developments.
Arsene Taxand 2009 - France - Legal information