ARTICLES and NOTES - Notarius International

Notarius International 3-4/2002 R. Frimston/R. A. D. Urquhart, La Vie en France 259
ent from a tax point of view. The effect is that the French
Revenue looks to each individual member and taxes
each member’s share directly as taxable income and
capital gain in exactly the same way as if the members
were owners of the underlying assets in their personal
names. Any profits made by a société civile or société
civile immobilière whose members are individuals will
therefore be taxed in France as personal income tax in the
hands of the individual members.
Under Article 206 of the French Code Général des Impôts
(General Tax Code), a société civile immobilière will
be taxed as a company with impôt sur las société only if
it trades commercially, and unless it so trades, it will be
outside the scope of Article 206 CGI.
French capital gains tax (plus-value) for individual
members is payable on any capital gains made by members
in respect of their share of the gains of property sales
made by the société civile immobilière.
A société civile is not required by law to file financial
statements with the Clerk of the Commercial Court, as
commercial companies must do, nor is there withholding
tax on profits which a société civile immobilière distributes
to its members, (except in the cases where a société
civile immobilière has voluntarily opted for impôt sur les
sociétés).
3. Tax treatment in the United Kingdom
In the past, our experience has been that UK Revenue
have accepted the transparent nature of a société civile immobilière
and, for example, regarded the gains of an individual
société civile immobilière member which have been
treated as transparent in France and taxed there, also as being
transparent in the United Kingdom and taxed as that of
the individual with the benefit of double taxation relief.
In particular, the Double Taxation Relief (Estate Duty)
(France) Order, 1963 [S.I. 1963 No. 1319] in Article IV
(g) specifically refers to “an interest in a partnership,
which term includes … a société civile under French law,
... and in the case of a société civile immobilière this shall
be where the land developed in accordance with the objects
of the société is located”.
It would appear, however, that the cases of Joseph
Carter & Sons Ltd v Baird and Wear Ironmongers
Ltd v Baird [1999] STC 120 caused the Revenue to
change its view in relation to SCIs and the case of Memec
plc v Inland Revenue Commissioners [1998] STC
754 caused the Revenue to review the classification of
foreign entities generally. As a result in Tax Bulletin issue
39 (February 1999) the Revenue set out a list of
those factors which it considered relevant, being:
a) Does the foreign entity have a legal existence separate
from that of the persons who have an interest in it
b) Does the entity issue share capital or something else,
which serves the same function as share capital
c) Is the business carried on by the entity itself or jointly
by the persons who have an interest in it
d) Are the persons who have an interest in the entity entitled
to share in its profits as they arise: or does the
amount of profits to which they are entitled depend on
a decision of the entity or its members, after the period
in which the profits have arisen, to make a distribution
of its profits
e) Who is responsible for debts incurred as a result of the
carrying on of the business: the entity or the persons
who have an interest in it
f) Do the assets used for carrying on the business belong
beneficially to the entity or to the persons who have
an interest in it
Particular attention is paid by the Revenue to factors (c)
and (d). Whether an entity is fiscally transparent or
opaque will not necessarily be the same in all cases or for
all taxes.
The Revenue subsequently issued in Tax Bulletin issue
50 (February 2001) its views on a number of different
overseas business entities; whether they were transparent
or opaque and when that Revenue view had last been
considered.
Sociétés civiles immobilières are stated to have been
last considered in February 2000 and are now to be regarded
as being opaque.
3.1. Benefit in Kind Problem
The issue of directors or shadow directors being subject
to an income tax charge under sections 145 and 146 IC-
TA 1988 by virtue of a benefit in kind enjoyed in relation
to the occupation of a company’s property has been well
aired over the years.
It was argued by Richard Bramwell QC in Taxation
17th June 1993 p 272 and 14th March 1996 p 628 that, if
one considers the ministerial statement made in the
course of the Parliamentary debates on the Finance Bill
in 1963 (Vol 677), the ambiguity in s 837 ICTA 1988
should be resolved by reference to that statement, which
made it clear that the section was limited to land in the
UK and that accordingly s 145 should have no application
to land held outside the UK.
The Revenue Manuals clearly show that the Revenue
does not currently share that view – e.g. Schedule E Manual
at paragraphs 11440 and 11441.
It has, however, been the decision of the House of
Lords in R v. Allen [2001] UKHL 45 that has caused a
number of professionals to review past practice. Although
R v. Allen did not assist in resolving the factors
that make a person a shadow director under s 168(8) IC-
TA 1988, it certainly underlined the general issues.
The question of a shadow director was considered in
Secretary of State for Trade and Industry v. Deverell
[2001] Ch 340. The question of “those,….,with real influence….”
appears to broaden the definition considerably.