"France" : French branch report to the 2024 Cape Town IFA Congress "Finding The Meaning Of Nexus For Taxes: Past, Present And Future"
Résumé
France is a high-tax jurisdiction with a high number of taxes. However, 70% of total tax revenue is derived from the six most productive levies. This branch report focuses therefore on the most important or otherwise emblematic taxes in order to study their nexus.
The French approach to nexus seems rather classical. Residence-based nexus triggers worldwide liability in personal income taxation or inheritance taxation. Territorial, objective connecting factors govern liability to tax by non-residents and can be broadly classified into two groups: those that rely on the localization of assets, rights or income generating activity in France and those which depend on the establishment in France of the debtor of income. A destination-based nexus is determining the territorial scope of VAT or other taxes on consumption, especially on energy.
Corporation tax stands out however as a particularity in that French corporations are not subject to a worldwide principle, as long as an item of income is attributable to a “business conducted” out of France. This is referred to in France as the principle of territoriality of the corporation tax. If the notion of “business conducted” out or in France is similar to the treaty notion of permanent establishment, the domestic concept may be broader or, on the contrary, more limited in scope. The principle of territoriality results in other peculiarities such as the referral to tax treaties made by domestic law through which France asserts jurisdiction, formally in domestic law, whenever the treaty confers the right to tax on France.
There are very few, if any, examples of extraterritoriality. The most original had been, in the past, the regime of Bénéfice Mondial Consolidé which had the effect of taxing in France profits and losses of foreign subsidiaries of French groups. Two other examples which come close to an extraterritorial dimension are the French CFC regime or the taxation of deemed distributions, including those to foreign shareholders, by foreign corporations which conduct a business in France. French tax law also pays particular attention to taxing French real property. There are several provisions which guarantee the possibility of taxation in France of the value of, or the income derived from, shares in companies, including foreign companies, holding French immovable assets. It is also noteworthy that even if any “genuine nexus” requirement were recognized in customary international law, it would probably have little practical importance in France since in the French domestic legal order, while international treaties take precedence over statutes, the latter are superior to customary international law.