In a recently published decision, the Administrative Court of Appeals of Paris ruled on whether the 33 1/3% withholding tax levied on capital gains derived by non-residents on immovable property situated in France is compatible with the non-discrimination article set out in the France-Greece tax treaty of 21 August 1963 and with EC law (decision of 25 May 2007 No. 06PA01257). Details of the decision are summarized below.
(a) Legal background. Under Art. 244 bis A of the French tax Code (Code Général des Impôts) as applicable at the time (i.e. in 1994 see (b) below), subject to tax treaty provisions, non-resident individuals and legal persons the legal seat of which was located abroad, were subject to a 33 1/3% withholding tax on capital gains derived from immovable properties located in France, unless the alienator carried out an industrial, professional, commercial or agricultural activity through a permanent establishment in France to which the immovable property was attributed. However, international organizations, foreign states, central banks and public financial institutions were exempt from the French tax under the conditions set out in Art. 131 sexies CGI.
(b) Facts. The Greek Museum Alexandrou Soutzou sold in 1994 rights in rem on a building located in Paris for FFR 4 million. The Museum was subject to a 33 1/3% withholding tax on the capital gains arising from the disposal of the building pursuant to the application of Art. 244 bis A CGI, as applicable at the time. The Museum requested a refund of the withholding tax paid to the French tax administration. The tax administration rejected the claim. Before the Court of Appeals of Paris, the Museum argued that under Art. 206-5 CGI, a French museum that disposes of French immovable property would not bear any corporate income tax on the derived gains, whereas a Greek museum would. The Museum argued that this difference in treatment constituted a discrimination that is incompatible with Art. 22 of the France-Greece tax treaty and with the EC freedom of establishment set out in Art. 43 of the EC Treaty.
(c) Issues. The issues before the Court were whether or not the said withholding tax was compatible with (i) the non-discrimination clause set out in Art. 22 of the France-Greece tax treaty and (ii) the EC freedom of establishment set out in Art. 43 EC.
(d) Decision of the Court. In substance, the Court rejected the claims of the taxpayer on the following grounds:
|-||considering the Greek Museum was a legal person separated from the Greek State, it did not fall under the exception from the tax granted to foreign States, so that the Greek Museum fell within the scope of Art. 244 bis A CGI;|
|-||Art. 22 of the France-Greece tax treaty prohibits discriminations based on nationality, but does not prohibit a Contracting State to subject non-residents to a higher tax burden than that applied to residents on capital gains arising from immovable property; and|
|-||Art. 43 of the EC Treaty does not apply to the case at hand insofar the taxation in this case is not related to self-employment activities or to the management of an enterprise but rather to the simple management by the Museum of its own assets.|
The Court disregarded any claim based on the EC freedom of capital movement set out in Art. 56 of the EC Treaty on the ground that such claim had not been sufficiently documented in the request sent to the Court.
(e) Comments. It is not clear whether or not the case would have been decided differently if the claim based on Art. 56 of the EC Treaty had been admissible.