France: Constitutionality of anti-avoidance provision | KPMG | GLOBAL

France: Decision expected to address constitutionality of anti-avoidance tax provision

France: Constitutionality of anti-avoidance provision

The French Constitutional Court is expected to issue a decision that will address whether an anti-avoidance tax provision of French tax law—concerning the rules on the recapture of financial expenses of a French tax group in instances of corporation acquisitions—is constitutional. The decision could possibly affect the application of other tax-avoidance measures in the French tax law.


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Article 223B §6 of the French tax law is known as the “Charasse amendment.” 

  • The measure provides for a partial recapture of financial expenses borne by a French tax group. 
  • The recapture arises when: (1) a tax consolidated company acquires shares of another company from an entity that is not part of the French tax group but that controls the acquiring company or is under common control with the acquiring company within the meaning of Article 223B; and (2) the acquired company joins the tax group.

The aim of the Charasse amendment is to address a perceived tax abuse in connection with favorably locating the financial expenses of the tax group.

Prior court decisions

A “second-tier court” (Cour Administrative de Nantes) on 5 May 2017 issued its findings and concluded that the Charasse amendment applies within the framework of certain leverage buy-outs (LBOs) when the vendor holds a minority stake in the investor’s vehicle.

However, on appeal, France’s highest administrative tax court (Conseil d’Etat) found that the automatic application of the Charasse amendment—without questioning the taxpayer’s intention to avoid tax—could be considered to be contrary to the principle set out in Article 13 of the Declaration of Human and Civic Rights (which provides for the constitutional principle of equality of citizens before the law). 

Accordingly, the Conseil d’Etat referred the case to the French Constitutional Court (Conseil Constitutionnel) for an answer to the question whether the absence of a safe harbor clause for application of the so-called “Charasse trap” could be considered to be contrary to the French Constitution.

KPMG observation

Tax professionals with Fidal* note that a decision by the Constitutional Court is expected by 2 May 2018, and if the decision concludes the Charasse amendment is an infringement of the constitutional principle of equality, it appears that other anti-avoidance tax measures could be challenged if these provisions do not provide for a safe harbor clause. In the meantime, the equality argument could possibly be invoked in certain other pending tax litigation.


For more information, contact a tax professional with Fidal in France or with KPMG in the United States:

Olivier Ferrari | +33 1 55 68 14 76 | 

Gilles Galinier-Warrain | +33 1 55 68 16 54 | 

Laurent Leclercq | +33 1 55 68 16 42 |

Bruno Bacrot | +33 1 47 38 89 96 |

Patrick Seroin | +1 (212) 954-2523 | 

* Fidal is a French law firm that is independent from KPMG and its member firms.

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