Consolidated Tax Groups Win On Contribution on Value Added (CVAE) Claims
On 19 May 2017, the French Constitutional Council ruled (1) that then current calculation for a company’s Contribution Value Added (CVAE) for consolidated tax groups was unconstitutional.
Who does this affect?
- Companies part of a consolidated tax group (2);
- Individual company with a turnover of less than 50 M€;
- Consolidated tax groups with turnover greater than 50 M€.
What’s behind this ruling?
“Article 1586c, Ia” of France’s General Tax Code (CGI) provides that the turnover used to calculate the effective tax rate shall be determined by the sum of the turnover of the companies belonging to consolidated tax group. Thus, the calculation of the CVAE is different depending on whether the company is part of a tax consolidation group or not.
So, for companies that are not members of a tax group, the rate of contribution depends on their individual turnover.
On 1 March 2017, the French Supreme Court (Conseil d’Etat) asked the Constitutional Council for a ruling on the constitutionality of CVAE rate being determined by the Group’s revenues. The question was based on the principle of equality before the law.
The Constitutional Council found that as the CVAE is a separate tax from the corporate tax, the calculation methods are therefore unrelated to the tax consolidation regime. As a consequence, companies belonging to a group are placed in the same position as the group falling under the tax integration regime or not.
Finally, if the French Assembly had intended to create obstacles to restructuring (reducing the CVAE of companies through a different distribution of the turnover in the Group), it could not make a distinction between those groups reporting earnings under tax consolidation or not, since they can all carry out such restructuring operations.
It follows therefore that this different treatment of tax consolidation, is contrary to the principle of equality, and is declared contrary to the Constitution.
Opportunity for Groups filing Consolidated Taxes
The ruling reversing different treatment for groups filing consolidation taxes takes effect from 20 May 2017 (the date of publication) and applies to all cases not having been tried as of that date.
It is therefore appropriate for companies belonging to a tax consolidation group to file claims challenging the effective tax rate at the CVAE for uncontested cases as of 20 May 2017 and for which the claim period has not yet expired.
Primexis, an independent consultancy and accounting firm specializing in the support of groups and subsidiaries of French and international companies for more than 30 years, can assist you in your contentious claims process for CVAEs under 2015 and 2016, which must be filed before 31 December 2017, and in all other accounting and taxation procedures.
- – FEUERSTEIN. I, « Vers une révision en profondeur du régime d’intégration fiscale des entreprises », Les Echos, 22 mai 2017
(1) Conseil Constitutionnel, 19 May 2017, no 2017-629 QPC.
(2) It concerns companies belonging to a group for which the detention of 95% stated by the article 223 A of the French General Tax Code is filled.