Council of State Ruling on International Tax Convention Precedence

Extract

[...] 209b of the General Tax Code for the 1986 fiscal year. The purpose of this provision was to tax, in France, profits realized by a foreign subsidiary of a French company, in the case where this subsidiary is located in a country with a privileged tax regime. This act is the one that founded the dispute brought before the administrative order. In this context, the Schneider Electric company directed the contestation of this taxation by basing its argumentation on the existence of a bilateral tax convention, between France and Switzerland, and concluded in 1966 (then modified in 1969). [...]

[...] At the international level, one can mention the BEPS project ( [...]

[...] Only the Constitution is above the conventional order provision. In this case, Article 7 of the aforementioned convention stipulated as follows: « The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. A thorough analysis of this case shows that the company named Paramer, which was then a Swiss subsidiary of Schneider Electric, did not have a permanent establishment in France. [...]

[...] This dispute therefore carries a fundamental question: can an international tax convention hinder the application of a national legislative provision aimed at combating tax evasion? How does domestic law relate to international law in this case? The CE has finally ruled, confirming the decision of the CAA, by estimating that the tax convention should take precedence over domestic tax law. We analyze this decision by addressing, in the first place, how the Council of State reaffirms the primacy of tax conventions over domestic tax law and then evaluating the consequences of this ruling on the taxation of companies operating internationally (II). [...]

[...] Council of State, Assembly June 2002, n°232276 - Can an international tax convention hinder the application of a national legislative provision aimed at combating tax evasion? Comment on judgment CE, Ass June 2002, n° Schneider Electric Introduction First of all, it should be considered that this judgment, rendered by the Assembly of the Council of State on June in the case of Société Schneider Electric, is one of the fundamental decisions in the field of international tax jurisprudence. Indeed, it is considered that the latter illustrates how a bilateral tax convention can take precedence over domestic law and thus come to hinder the possibility of applying a national legal provision in the case of taxation of a French company having the particularity of having one or more subsidiaries abroad. [...]