Decision of the French Constitutional Court concerning the contribution on added value and tax consolidated companies

Written on 24 May 2017

The French Constitutional court has just ruled, in a decision dated 19 May 2017, that the specific method under which the effective tax rate of the CVAE for companies members of a tax consolidated group was computed is contrary to the French Constitution.

The CVAE is an additional tax due by companies which are subject to the CFE and whose turnover exceeds EUR 152,500. CVAE is assessed on the added value produced by a company at a rate of in principle 1.5%. In practice, a declining allowance is granted to the company depending on the amount of its turnover, and as a consequence the 1.5% rate is only applicable to companies whose turnover exceeds EUR 50,000,000.

In order to avoid potential tax-optimization strategies that groups could have put in place in order to unduly benefit from the declining allowance of CVAE, article 1586 quarter, I bis of the French tax code provides that the turnover to be used for calculating the effective tax rate for companies members of a tax consolidated group is assessed at the level of the group if the aggregate amount of turnover of the companies members of that tax consolidated group exceeds EUR 7,630,000.

As a consequence, companies members of a tax consolidated group had to pay CVAE by applying an effective tax rate based not on their own turnover but instead based on the turnover of the tax consolidated group. In the meantime, companies which could have been members of a tax consolidated group, but which chose not to, were subject to CVAE based on an effective tax rate based on their own turnover.

Such difference in treatment to the detriment of companies members of a tax consolidated group was condemned by the French constitutional court. The court ruled that companies that are members of a tax consolidated group are in the same situation as companies which have decided not to be members of a tax consolidated group in respect of the CVAE as the tax consolidated regime is only dealing with corporate income tax and its additional contributions. Therefore, and even if the French tax code could have provided specific rules to determine the effective tax rate for companies member of a group so as to limit potential tax-optimisation strategies aimed at reducing the aggregate amount of CVAE due by the companies of the group, the criteria on which the specific regime is applicable is not in line with the purpose of the law and as a consequence is contrary to the equality principle included in the French Constitution.

The French constitutional court specified in its decision that the declaration of constitutional invalidity enters into force as from the publication of its decision, id est 20 May 2017, and is applicable to all the claims for which a final judgement has not been delivered, subject to the statute of limitations laid down in the French tax procedure code.

The declaration of constitutional invalidity can be invoked in any pending proceedings, whether they are already before the judge or before the French tax authorities. In addition, paragraph 13 of the decision of the French Constitutional Court implies that the declaration of constitutional invalidity could also be invoked to challenge all the CVAE relating to calendar years 2015 and 2016 even if the claims have not been introduced before the date of the publication of the decision of the French Constitutional Court. In that case, the claims need to be filed no later than 31 December 2017.

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