Friendship treaties can also serve as tax avoidance tools when double taxation treaties are absent.
France: Non-Discrimination and the Treaty of Establishment with Panama
by Stefan N. Frommel, London
Conseil d'Etat: Resources Management Corporation S.A., 16 December, 1991
A. The facts
Resources Management Corporation was a company limited by shares incorporated in Panama. The company had issued 5,000 shares in bearer form and only two of the shareholders were known to the French tax authorities: a Mr. Arias and a Mr. Suarez, each holding one share. The remaining 4,998 shares were in the hands of shareholders who had not been identified.
Resources Management owned a villa in Eze-sur-Mer, on the Còte d'Azur; it had no other property or other activities in France. The villa was – the whole year round an free of charge – atthe disposal of Mr. Chofaras, a Greek national, who lived in Paris, at avenue de l'Are de Triomphe.
Resources Management had never filed a tax return. The tax authorities assessed the company to corporation tax for the years 1974 to 1977. For 1974 to 1976 the tax was assessed on the basis of the real rental value of the property. For 1977 it was assessed on three times the real rental value, according to article 209A, which came into force on 1 January, 1977.
Only the assessment for 1977 is relevant for our purposes.
B. The Conclusions of the Commissaire du Gouvernement
In his conclusions, M. Fouquet made the observations summarized below and requested the court to discharge the assessment for 1977.
(a) The administration argued that tax treaties traditionally allocate the right to tax income from immovable property to the Contracting State in which such property is situated. M. Fouquet observed:
The court had previously decided (in Le Beau Logis and Quadriga) that the non-discrimination clauses in the tax