French court declares trust registry of beneficiaries as unconstitutional

While the French administration has declared that Panama is everything but a stain on civilization because of its privacy laws, its Constitutional Court - chaired by Laurent Fabius - has deemed the public registry of beneficiaries to be unconstitutional violation of rights enshriend in the 1789 Declaration of the Rights of Man and the Citizen.

Decision no. 2016-591 QPC of October 21, 2016

Ms. Helen S. [Public Registry of Trusts]

THE CONSTITUTIONAL COUNCIL WAS ASKED TO DECIDE UPON a priority matter of constitutionality on 25 July 2016 by the Conseil d'État (decision no. 400913 of 22 July 2016), under the conditions set out in Article 61-1 of the Constitution. This matter was put forth for Ms. Helen S., by Stéphanie Auféril Esq., Marine Dupas Esq. and Stanislas Pannetier Esq., attorneys admitted to the Paris bar. It was recorded by the General Secretariat of the Constitutional Council under number 2016-591 QPC. It relates to compliance with the rights and freedoms that the Constitution guarantees in the second paragraph of Article 1649 AB of the General Tax Code in its report from Law number 2013-1117 of 6 December 2013 relating to the fight against tax fraud and serious economic and financial crime.

In light of the following texts:

• the Constitution;
• Ordinance no. 58-1067 of 7 November 1958 as amended, concerning the basic law on the Constitutional Council;
• the General Tax Code;
  -Law number 2013-1117 of 6 December 2013 relating to the fight against tax fraud and serious economic and financial crime;
• The Regulation of 4 February 2010 on the procedure applicable before the Constitutional Council with respect to applications for priority preliminary rulings on the issue of constitutionality;

In light of the following items:

• the observations made on behalf of the applicant by SCP Matuchansky-Poupot-Valdelievre, Attorney at the Conseil d'État and the Cour de Cassation, registered on 22 August 2016;
• the observations of the Prime Minister, registered on 22 August 2016;
• the documents produced and appended to the case file;

Having heard Olivier Matuchansky Esq., attorney at the Conseil d'État and the Cour de cassation, and Ms. Auféril Esq. for the applicant, and Mr. Xavier Pottier, appointed by the Prime Minister, at the public hearing of 11 October 2016;

And having heard the Rapporteur;

THE CONSTITUTIONAL COUNCIL DECIDED ON THE FOLLOWING:

1. The second paragraph of Article 1649 AB of the General Tax Code, in its report from Law number 2013-1117 of 6 December 2013 mentioned herein above, states: "A Public Registry of Trusts has been instituted. It mandatorily lists the trusts registered, the name of the administrator, the name of the settlor, the name of the beneficiaries and the date the trust was formed".
2. The applicant claims that these provisions fail to take into account the law in regard to private life and are tarnished by incompetence under the conditions of this right insofar as they allow the public free and unrestricted access to confidential information related to the composition of a trust. These provisions also fail to take into account the principle of equality before the law.

• On the merits:

3. The freedom proclaimed by Article 2 of the 1789 Declaration of the Rights of Man and the Citizen implies the right to respect for private life; Owing to this, collecting, recording, keeping, consulting and communicating information of a personal nature shall be justified by general interest and implemented in an adequate and proportional manner.
4. The Public Registry of Trusts instituted by the second paragraph of Article 1649 AB of the General Tax Code identifies all trusts, under Article 792-0 bis of this Code, and declaring them is made obligatory by the first and fifth paragraphs of this Article. These are trusts which the administrator, the settlor, or at least one of the beneficiaries has its fiscal domicile in France or which include a good or a right located here. For each trust, the registry includes the date the trust was formed as well as the name of the administrator, the settlor, and its beneficiaries. The fourth paragraph of Article 1649 AB refers to a decree in the Conseil d'État and the right to specify the means to consult this Public Registry.
5. By these disputed provisions, through emphasising transparency of the trusts, the legislature intended to prohibit their use for the purpose of tax evasion and money laundering. It also sought the objectives enshrined in the constitution of the fight against fraud and tax evasion.
6. Listing, in a registry accessible to the public, the names of the settlor, the beneficiaries and the administrator of a trust provides information on the manner in which a person intends to manage his or her estate. The result is an infringement on the right of respect for private life. However, the legislature, which did not specify the quality nor the motives that justify consulting the registry, did not limit the people that have access to the information in this registry, placed under the responsibility of the tax administration. Therefore, these disputed provisions have a clearly disproportionate effect on the right of respect for private life in regard to the objectives sought. As a result, without reviewing other grievances, the second paragraph of Article 1649 AB of the General Tax Code should be declared counter to the Constitution.

• On the Effects of the Ruling of Unconstitutionality:

7. According to the second paragraph of Article 62 of the Constitution: “A provision declared unconstitutional on the basis of Article 61-1 is revoked as from the publication of the decision of the Constitutional Council or at a later date stipulated in the decision. The Constitutional Council determines the conditions and the limits according to which the effects produced by the provision shall be liable to be challenged". In principle, the declaration of unconstitutionality should benefit the individual who brought up this priority matter, and the provision declared unconstitutional may not be applied in proceedings pending on the date of publication of the decision of the Constitutional Council. However, the provisions of Article 62 of the Constitution provide the latter with the power to set the date of repeal and to delay its effects in time and to reconsider the effects that the provision may produce before this declaration takes effect.
8. In this case, no motive should justify a delay of its effects of unconstitutionality. This should take effect from the date of the publication of this decision.

HELD:

Article 1. - The second paragraph of Article 1649 AB of the General Tax Code in its report from Law number 2013-1117 of 6 December 2013 relating to the fight against tax fraud and serious economic and financial crime is unconstitutional.

Article 2. - The declaration of unconstitutionality of Article 1 shall take effect under the conditions set out in paragraph 8 of this decision.

Article 3. - This decision shall be published in the Journal officiel of the French Republic and notified in the conditions provided for in Section 23-11 of the Ordinance of 7 November 1958 referred to hereinabove.

Ver texto en: https://www.conseil-constitutionnel.fr/decision/2016/2016591QPC.htm

French minister causes suspension of contract

Panama's government has suspended a contract with French credit insurance giant Compagnie Francaise DAssurance Pour le Comerce Extérieur (Coface) to finance part of a project to build the first line of its subway, after French Minister Valérie Pécresse persisted in including Panama in France's list of tax havens, despite the signing of a double-taxation agreement by both countries.

The actions by the Minister prove that the entire "tax transparency" campaign by European countries is a scam that will only end until Caribbean financial centers are reduced to banana and sugar cane exporters as in the 18th century. No matter how many tax agreements are signed, or laws changed, there will always be some new "black list" that international financial centers (except those in Europe) are deemed to be included in.

The Comunique of the Panama Ministry of Foreign Relations states in its draft translation:

Posted on Sunday, November 27, 2011 in Information
COMUNIQUE

Panama has made notable and recognized efforts to update the rules governing our financial sector, including the signing of 12 Double Taxation Treaties that have allowed us out of the OECD's gray list.

Statements French Minister of Budget and Public Accounts, Valérie Pécresse, just days after the interview between the President of the Republic, Ricardo Martinelli and French President Nicolas Sarkozy contradict what was agreed between the two Presidents.

We call on France to ratify promptly the Double Taxation Agreement signed with Panama last June 30 which was ratified by Panama in October.

We are confident that when France ratifies this treaty, as promised by President Sarkozy to President Martinelli French animosity against Panama on this issue will disappear.

Panama's sovereign decision to refuse services COFACE the French company, is a measure backed by Panamanian Law 58 of 2002 adopting retaliatory measures in case of foreign discriminatory restrictions against the Republic of Panama.

We had already warned would take action against repeated verbal attacks on our financial system in international forums by countries whose companies, in parallel, seek to participate in the huge public investments in our country forward.
http://www.mire.gob.pa/noticias/2011/11/27/comunicado

Earlier this month, Panama's Foreign Minister Roberto Henriquez had called the G20 hypocrites after including Panama again in their list of tax havens, despite having signed the 12 Double Taxation Agreements required by the OECD. http://www.telemetro.com/noticias/2011/11/07/84789/panama-califica-actitud-hipocrita-posicion-g20

According to La Estrella, Minister Pecresse made a Sunday call to the Panamanian Treasury Minister De Lima sayins that an emissary would fly into Panama to clarify matters. http://www.laestrella.com.pa/online/noticias/2011/11/28/francia_se_retracta_luego_de_acciones_de_panama_contra_coface.asp

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COFACE Risque pays et études économiques > Panama
http://www.coface.fr/CofacePortal/FR_fr_FR/pages/home/os/risks_home/risques_pays/fiche/Panama?extraUid=571911

COFACE dans le monde
http://www.coface.com/CofacePortal/ShowBinary/BEA%20Repository/AR/es_ES/pages/home/wwa/gt/memoria/_docs/coface_es.pdf

Societe Generale leaving Panama (again)

This the case of the bankers who cried "wolf".

Societe Generale with great fanfare announced that they were leaving Panama in 2010 because of its "tax haven" status. What the media had missed was that they already announced in 2002 they were leaving Panama because of the country being considered a tax haven. Somehow Panama was a market good enough to return after 2002, or each closure is an excuse to cover up bad management of the branch.

Of course, Panama News also concluded in 2002 that the "entire offshore financial services sector's days are numbered". After that "prediction" the Panama banking sector has excess liquidity up to the point that some banks reject non-resident clients.

Now the French authorities have declared that even after Panama signing a double-taxation treaty with France, the Isthmus is still a "tax haven".

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Societe Generale leaving Panama

Citing special charges and delays imposed by other countrie on financial transactions that involve Panama, France's second-largest bank, Societe Generale, is closing its operations in Panama City's banking center. Brazil, Venezuela, Mexico, Argentina and Peru all discriminate against transactions involving Panama, mainly because those countries have long experience with their public officials laundering the proceeds of corrupt practices here. Societe Generale joins UBS and ABN Amro Bank in the line of European financial institutions leaving Panama, and its departure is taken by some analysts as another sign that the entire offshore financial services sector's days are numbered.
http://www.thepanamanews.com/pn/v_08/issue_14/business_briefs.html July 28-August 10, 2002

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Societe Generale moves Mexico ops. to France - Mexico, Panama
France's second largest private bank in terms of assets Societe Generale has decided to manage its Mexican customers' accounts from France rather than from its Panamanian branch, Societe Generale Panama CEO Celestin Cuq told Panamanian daily La Prensa.
Mexico charges a 15% tax on operations conducted through Panamanian banks, yet Mexico and France have a mutual tax waiver agreement, so it makes sense for Societe Generale to serve its Mexican clients from France, despite Panama's offshore status.
Fellow European banks UBS and ABN Amro also pulled out of Panama in 2001 for the same reason. However, Cuq said Societe Generale would maintain a representative office in Panama because it is of strategic value for securing business in Central America and the Caribbean.
http://www.bnamericas.com/news/banking/Societe_Generale_moves_Mexico_ops,_to_France Published: Friday, July 26, 2002 14:15

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SOCIETE GENERALE : La SocGen examine des "anomalies" sur un compte de Singapour
Tous les articles PARIS, 1er avril (Reuters) - La Société Générale enquête sur des "anomalies" trouvées dans le compte d'un client supervisé par l'un de ses banquiers privés à Singapour, a déclaré jeudi un porte-parole de la banque.
Ce dernier n'a pas donné de précision sur la nature de ces anomalies mais il a dit qu'elles avaient été détectées en février et que la banque avait immédiatement informé les clients qui pourraient être concernés.
Il a ajouté que la banque faisait son possible pour résoudre la question rapidement dans l'intérêt de sa clientèle.
La banque a engagé en mars Benedikt Maissen, un ex-responsable de la Barclays, pour ses opérations en Asie.
Benedikt Maissen, 50 ans, rendra compte à Pierre Baer, responsable des opérations de banque privée de la Société Générale à Singapour et en Asie méridionale.
(Sudip Kar-Gupta, avec la contributioon de Wilfrid Exbrayat, édité par Jean-Michel Bélot)
http://www.investir.fr/infos-conseils-boursiers/actus-des-marches/infos-marches/la-socgen-examine-des-anomalies-sur-un-compte-de-singapour-239387.php 01/04/10 à 16:04 - REUTERS 0 commentaire

Former Societe Generale Trader Goes on Trial
Trial began Tuesday for a former trader accused of brining losses of 5 billion euros (5.95 billion U.S. dollars) to the French bank Societe Generale SA (SG).
About 50 witnesses were expected to be called in the three-week trial of Jerome Kerviel, who is charged with forgery, breach of trust and unauthorized computer use. Kerviel faces five years in prison as well as a fine of 375,000 euros (448,000 dollars), if convicted.
In addition, his former employer Societe Generale would demand a sum of 4.9 billion euros (5.83 billion dollars) in compensation for damages, SG lawyer Jean Veil told the Sunday paper Le Journal du Dimanche.
http://english.cri.cn/6966/2010/06/08/1461s575490.htm 2010-06-08 19:52:40 Xinhua Web Editor: Zhang Jin

Panama-France Treaty protects Panama corporations

A little-known treaty, called the Franco-Panamanian Treaty of Establishment from 1953, provides that investments in each of the signatory countries by investors of the other state, are subject to equal treatment. A Panama corporation with one Panamanian as shareholder was therefore exempt from a punitive anti-tax haven 3% tax levied on French properties owned by non-residents.

Friendship treaties can also serve as tax avoidance tools when double taxation treaties are absent.

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France: Non-Discrimination and the Treaty of Establishment with Panama

by Stefan N. Frommel, London

5. 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 ([...])

• As a result of these decisions the Government has asked Parliament to abolish Article 209A and replace it with the 3 percent annual tax on the market value of French real property (article 990D of the General Tax Code).

• Article 7 of the treaty with Panama, being similar (analogue) to the non-discrimination clauses found in the vast majority of tax treaties, should be given the same effect.

• It was not contested that “nationals”, the term used in the treaty, applied not only to individuals but also to legal persons, according to Royal, which he cited.

(b) The administration argued that article 7 of the treaty with Panama did not refer to “corporation tax”. M. Fouquet observed:

• The wording of article 7 (“duties, levies, taxes, or contributions, of whatever denomination”) was sufficiently wide to include corporation tax.

• Moreover, it was no longer relevant, since Nicolo, that the law of 29 December 1976 (at the origin of article 209A) was subsequent to the treaty.

(c ) The administration argued that the treaty with Panama was not valid because it had not been ratified by the president of the Republic, M. Fouquet replied:

• According to the decision in Navigator (1965), the treaty had been properly introduced into French law by a decree of the President followed by publication in the Official Journal.

(d) To conclude, M. Fouquet mentioned Société Panagest, where the court,following his own submissions, had applied article 209A to two Panamanian companies: “Lack of sufficient time”, he said, had prevented him from discovering earlier the existence of the treaty with Panama.

• Following Carboline-Europe (1986), he added, “the equality-of-treatment clause in a treaty is of [concern to] public policy (ordre public) and must be applied by the court ex officio, [even if it has not been pleaded by the taxpayer].”

C. The Decision

The relevant part of the decision reads as follows:

“As far as the year 1977 is concerned:

“Whereas, according to article 209A of the General Tax Code, in force at the time: 'If a legal person (personne morale) whose seat (siège) is situated outside France, has at its disposal one or more real properties or grants the use of such property either gratuitously or for a rent inferior to the real rental value, it is subject to the corporation tax on a basis which cannot be lower than three times the real rental value of the said property'; that for 1977 the petitioner has been subject to corporation tax, according to that provision, on a base equal to three times the rental value of the aforementioned villa; that, however, petitioner invokes the provisions of article 7 of the treaty of establishment between France and Panama of 10 July, 1953, published by virtue of decree 58-438 of 12 April, 1958 in the Official Journal of 23 April, 1958, according to ([...]) within the territory of the other Party, to any other or higher duties, levies, taxes, or contributions, of whatever denomination than those which are imposed on the nationals'; that these provisions form an obstacle to the fixed rate taxation (taxation forfaitaire) foreseen by article 209A of the General Tax Code; that the company limited by shares Resources Management Corporation is, accordingly, entitled to demand the discharge of the assessment to corporation tax to which it was subjected for the year 1977.

“[The court] decides: …

“The company limited by shares Resources Management Corporation is discharged from the assessment to corporation tax and ancillary penalties to which it was subjected for the year 1977.”

VI. A Point That Was Not Raised: Abuse of Rights

A word of caution for anyone planning to use Panamanian companies to hold French real estate: beware of the doctrine of abus de droit. It was not raised in Resources Management, but might well be invoked in other cases.

In French tax law, the expression abus de droit (abuse of rights) refers to unacceptable tax avoidance. Outside the tax field it has a different meaning and refers to a doctrine that has been developed by the French courts and become a “general principle of law”: a person acts unlawfully, or he made use of a right with the intention or purpose of causing harm to another person. Transposed to taxation matters, the doctrine means this: although a taxpayer has a right to arrange his affairs in any way which is legal, he abuses that right if he exercises it solely to avoid tax.

VII. Are Panamanian Companies Protected from the 3 Percent Annual Tax on the Market Value of French Real Property?

A short note, signed with the initials “O.F.” (Olivier Fouquet?) is appended to the report of Resources Management in the Revue des Sociétés. ([...]) … times the rental value of French real property) appeared to be “transposable” to the “new” 3 percent annual tax on the market value of the property (imposed by article 990D which replaced article 209A) because the Cour de Cassation had also decided (in Société Royal) that a non-discrimination clause in a “bilateral treaty” was an obstacle to application of this tax.

This analysis is correct and is shared by another commentator, M. Phillipe Derouin.

Comparing Société Royal with Resources Management it is apparent that both decision have three fundamental points in common:

• A tax that is discriminatory because it applies only to companies which have their seat outside France (both taxes are closely related: one replaced the other).

• A treaty with a non-discrimination clause (both clauses have similar wording).

• A constitutional principle of supremacy of treaties over domestic legislation (both taxes were enacted after conclusion of the treaties).

In this circumstances, unless the Constitution is amended or the treaty is renegotiated, it is doubtful that the 3 percent tax imposed by article 990D of the General Tax Code could ever apply to Panamanian companies.

Full text in Tax Planning International Review (1992) . Extract posted with thanks to Alexandra Stoffl (University of Vienna, B.Sc., LLM)