This article was first published on Tax@Hand, and is reproduced on this blog with the authorization of its authors.
The Administrative Court of Appeal of Paris ruled on 1 March 2024 that the French horizontal tax consolidation regime is not contrary to the nondiscrimination clause of the France-Switzerland tax treaty.
Background and facts of the case
As a reminder, the French horizontal tax consolidation regime was introduced in France in 2014, following the decision of the Court of Justice of the European Union in SCA Group Holding and Others (12 June 2014, joined cases C-39/13, C-40/13, and C-41/13), in which the court held that the Dutch fiscal unity regime violated the freedom of establishment guaranteed by EU law.
The horizontal tax consolidation regime allows tax consolidation among French sister or cousin companies that have a common parent company in an EU member state or a member state of the European Economic Area (EEA) that has concluded an administrative assistance agreement with France (i.e., Iceland, Liechtenstein, or Norway).
In the case at hand, a Swiss company (i) wholly owned a French company, itself the parent of a vertical tax group, and (ii) owned indirectly, through a Swiss holding company, another French subsidiary.
The French parent company asked to include its “niece,” held indirectly by the Swiss ultimate parent company, in its group, thus forming a horizontal tax group. Because Switzerland is neither an EU nor an EEA member state, the French tax authorities did not permit the formation of such a group.
The French company then argued that the French rules on horizontal consolidation were contrary to the nondiscrimination clause provided in article XXVI(5) of the France-Switzerland tax treaty, which states: “Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.”
The French company argued that, if the Swiss parent company had been established in France, its French subsidiaries could have been part of the same horizontal tax group.
Decision of the Paris Administrative Court of Appeal
The Paris Administrative Court of Appeal ruled that, had the Swiss ultimate parent company been tax resident in France, the French subsidiaries would not have been eligible to be members of the same horizontal tax group because the French niece company was owned by a different Swiss entity, i.e., the Swiss holding company.
Furthermore, the court stated that the nondiscrimination clause of the France-Switzerland tax treaty does not change the fact that the French horizontal tax consolidation regime is only available to French companies owned by parent companies and intermediate entities established in an EU member state or an EEA member state that has concluded an administrative assistance agreement with France.
It should be noted that this decision is not final and could be upheld or reversed by the Supreme Administrative Court (Conseil d’Etat).
