30 April 2019
Regime governing property traders: the Cour de Cassation challenges the possibility to avoid payments of registration fees for operations in the past that partially complied with an undertaking to resell
Legal and regulatory environment:
Under article 1115 of the General Tax Code, the acquisition of a property by a person subject to VAT made with an undertaking to resell it within five years will be subject to registration fees at the rate of 0.715% instead of 5.80% (or 6.40 % in the Ile-de-France region).
If this undertaking to resell is not respected, the purchaser must make payment of the difference in fees plus late-payment interest..
In its statement no. 7 C-2-11 of 18 April 2011 (appearing in the Official Bulletin of Public Finances BOI-ENR-DMTOI-10-50-20140429, no. 110), published on the occasion of the 2010 reform of VAT on real estate and of registration fees, the tax authorities introduced the following interpretation in the case of the resale by lots of a building acquired under the regime set out in article 1115 General Tax Code: “If, at the end of a period of five years, the undertaking to resell is only met for a part of the property to which it relates, the purchaser will be liable for the fees that were waived, as well as the resulting costs and late-payment interest, amounting to the difference between the price at which the purchaser acquired the property and the price at which were sold the parts of the asset for which the undertaking was met. This approach will apply for each parcel or lot where the purchase price was given separately in the deed”.
→ If the sum of the sales prices of the lots resold within the 5-year period is greater than the purchase price of the building, no additional fees will be due even if certain lots have not been resold within the 5-year period (provided that the acquisition price of the property was not broken down by lot in the deed of purchase).
However, following the publication of this statement of practice, the tax authorities continued to issue adjustments in the event of a partial failure to meet the undertaking to resell, even where the sale price of the lots sold within the 5-year period was greater than the purchase price of the entire building. In doing so they took the view that this approach was only applicable to transactions subsequent to 11 March 2010, the date on which the above-mentioned 2010 reform of VAT on real estate and of registration fees entered into force.
Court decisions in favour of taxpayers:
In view of the above, appeals were made to challenge this position and various courts ruled in favour of taxpayers, judging that the above-mentioned approach could be cited against the tax authorities, given that it had been published prior to the issuing of the adjustments and thus to the actions for recovery.
As an example, reliefs were obtained for acquisitions made in 2005 where a proposed adjustment was issued in 2013.
Adverse ruling by the Cour de Cassation:
One of the decisions in favour of the taxpayer was that handed down by of the Paris Court of Appeal on 13 September 2016 (2015/07471), which was appealed by the tax authorities before the Cour de cassation, in turn leading to a ruling of 10 April 2019 (ruling no. 376 FS-P+B).
Here, the Cour de cassation questioned the possibility of citing the practice adopted by the tax authorities towards buy-sell operations that occurred prior to publication of their statement in this regard in cases where adjustments were issued subsequent to its publication.
This in fact overrules the decision by the Paris Court of Appeal and holds that: “Where the approach formally admitted by the tax authorities is invoked for the benefit of the taxpayer, this may only be applied according to the terms and content in force at the time of the disputed tax charge, with the result that the statement cannot be applied to tax charges where the taxable event occurred prior to 18 April 2011”.
Thus, according to the Cour de cassation, this approach can only be applied to operations where the taxable event, i.e. the purchase of a property subject to an undertaking to resell, occurred on or after 18 April 2011.
This is therefore bad news for taxpayers whose cases are still ongoing, although it may be noted that the question of the consequences of a partial resale of a property for a price higher than the purchase price has not yet been definitively resolved: the Cour de cassation has referred the matter to the Paris Court of Appeal.
Pierre Appremont & Samuel Drouin