The French advance tax ruling and clearances

An advance tax ruling is a formal position taken by the tax authorities on the application of a tax provision to a factual situation described by the taxpayer, in principle before the transaction is carried out. Once the position has been taken, the authorities may no longer issue a reassessment based on a different interpretation, as long as the facts and the applicable law remain unchanged. The main legal basis is article L. 80 B of the French Tax Procedure Code (Livre des procédures fiscales), whose 1° establishes the general ruling, supplemented by specific rulings for certain regimes.

Article L. 80 A of the LPF establishes the protection against changes in published doctrine: it makes the authorities' own formally accepted interpretation of a tax provision binding on them, in particular the doctrine published in the Bulletin officiel des finances publiques, on which any taxpayer in the situation covered may rely. Article L. 80 B, by contrast, concerns a position on an individual factual situation, personal to the sole taxpayer who made the request. The doctrine protection safeguards a general, published position; the ruling safeguards a specific position obtained on request.

Article L. 64 B of the LPF allows a taxpayer to consult the tax authorities, before a transaction, on the true scope of a structure or an instrument. Where the authorities have not replied within the prescribed period, they may no longer use the abuse-of-law procedure provided for in article L. 64 of the LPF against the transaction described. This ruling is a decisive tool for securing restructurings, holding companies and transmission transactions that could be regarded as pursuing a mainly tax-driven purpose.

The effect of silence depends on the ruling concerned. For certain specific rulings under article L. 80 B of the LPF, the absence of a reply within the prescribed period, in principle three months, amounts to deemed approval: the taxpayer may then rely on the position implicitly obtained. For the anti-abuse-of-law ruling under article L. 64 B, silence at the end of the period deprives the authorities of the possibility of invoking abuse of law. By contrast, for the general ruling, the absence of a reply does not amount to deemed approval: it leaves the taxpayer without a formal, binding position.

Yes, within the limits of the situation described. Once a position has been obtained under article L. 80 B of the LPF, the authorities may not issue a reassessment that contradicts their answer, for as long as the facts described and the applicable legislation remain unchanged. Likewise, the protection under article L. 80 A prevents the authorities from calling into question, through new doctrine, a formally accepted position on which the taxpayer relied. The protection obtained therefore requires perfect consistency between the facts presented and the transaction actually carried out.

A tax clearance is a prior authorisation issued by the tax authorities, a condition of access to certain preferential regimes, in particular for mergers, contributions and restructurings. Unlike the ruling, which records how the law applies to a situation, the clearance makes the benefit of a regime conditional on an express decision of the authorities and, often, on compliance with undertakings given by the beneficiary. Failure to comply with those undertakings may lead to the retroactive forfeiture of the regime obtained. The preparation of the file and the monitoring after the clearance are therefore decisive.

The scope of the protection depends directly on the quality of the request. The request must set out a complete, sincere and accurate factual situation, ask a precise question on the tax provision at issue and be sent to the competent department before the transaction is carried out. Any omission or inaccuracy affects the binding effect of the answer: a position binds the authorities only if the transaction carried out corresponds faithfully to the facts presented. The firm drafts the request, monitors its progress and verifies the consistency between the answer obtained and the transaction implemented.