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ECJ Adviser Rules Against French Citizen's Exit Tax Challenge

by Ulrika Lomas,, Brussels

03 August 2017

An Advocate General to the European Court of Justice has opined that a French citizen cannot rely on the agreement between France and Switzerland on freedom of movement to avoid France's exit tax.

The case involves a French citizen, Mr Picart, who held significant shareholdings in a number of French companies when he transferred his tax residence from France to Switzerland in 2002.

On transferring his tax residence, Picart, in accordance with French law, declared an unrealized capital gain on the shares and, in order to benefit from suspension of payment of the tax payable on that capital gain, appointed a tax representative in France and provided a bank guarantee to ensure recovery of the debt to the French Treasury.

In 2005, Picart transferred his shares, thereby bringing the suspension of taxation to an end. However, after examining his personal tax situation for the period January 1, 2002, until December 31, 2004, the French tax authorities reassessed the amount of the capital gain at issue and claimed additional payments of income tax.

Picart challenged the tax assessment, arguing that the relevant article of the French tax code was incompatible with the EU/Switzerland agreement on the free movement of people (the AFMP). He claimed that freedom of establishment was guaranteed by that agreement and that he could rely on it, as a self-employed person, since he had become established in Switzerland in order to pursue an economic activity consisting in managing his various direct or indirect shareholdings in a number of companies which he controlled.

Picart appealed the decision up to the Conseil d'État (Council of State, France), which referred the matter to the ECJ.

In his opinion, Advocate General Paolo Mengozzi found that the circumstances of the plaintiff does not fall under the scope of the terms of the AFMP.

"The right of establishment of a self-employed person, as laid down in [the AFMP] must be interpreted as meaning that it extends only to a natural person wishing to pursue, or pursuing, a self-employed activity on the territory of a Contracting Party other than that of which he is a national, and on which he must be treated in the same way as a national of that State, that is to say, any overt or covert discriminatory measure on grounds of nationality must be prohibited," Mengozzi observed.

"On the basis of the information provided by the referring court, the plaintiff in the main proceedings does not appear to fall within the scope of those terms of the agreement" he concluded.

TAGS: court | tax | mining | law | agreements | France | Switzerland | exit tax | individual income tax | Europe

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