Two main types of société civile (there are various other types) are:
- société civile professionnelle (civil professional partnership) (used for law firms, etc.)
- société civile immobilière (civil property holding entity);
This article comments only on the société civile immobilière. From the legal point of view, sociétés civiles immobilières are subject to the general laws governing societies civiles contained in the French Code Civil, although certain types of investment vehicles known as sociétés civiles de placement immobilier or sociétés civiles constituted for the purpose of building properties with a view to resale (construction vente) or sociétés civiles d’attribution en jouissance à temps partagé (timeshare companies) have specific regulations attaching to them.
A société civile is civil by its character when it:
- when it is not a société on which the law confers a commercial character by reason of its form or its objects.
- has a civil activity or business; and Sociétés civiles are principally governed by Section IX of Book III of the French Civil Code, particularly Articles 1832 to 1873. Commercial companies (société anonyme, société à responsabilité limitée) are governed by the French Commercial Code. The usual constitution can however be varied to make the liability of themembers expressly both joint and several. Individual members of a société civile immobilière by virtue of its constitution usually have joint unlimited liability for its debts but the unlimited nature of their liability is usually only in proportion to and to the extent of their holdings – i.e. it is not several. A société civile immobilière is for legal purposes a separate legal entity from that of its members and therefore is capable of owning assets, which do not merge with the assets of each individual member.
The principal consequences usually attached to a separate legal entity a personnalité distincte de ses membres, in French law are:
- it may own property,
- it may sue and be sued,
- it may enter into contracts in its own name,
- it will not be wound up by the death of one of its members.
However, in the case of a société civile immobilière, the consequences of being a separate legal entity from its members are not in French law as strong as for a trading company because:
- A société civile immobilière must have at least two members (who may be husband and wife).
- Sociétés Civiles (including a société civile immobilière), although separate entities from their members, are created by contract between the members and are therefore based on a relationship that is intuitus personae which is to say that the personality/efforts/interests of each individual member have an important, perhaps essential, part to play in the formation, management and subsequent dissolution of sociétés civiles.
- A société civile immobilière is both a collective entity with a legal personality of its own and a contract between its various members. Article 1832 of the FrenchCivil Code defines “a société as a contract by which two or more persons agree to combine assets or contributions of work with a view to sharing profits or benefiting from the savings therefrom….”
- A société civile immobilière does not (and cannot) have a board of directors nor any directors nor a chairman. It is managed on a day-to-day basis by the gérant (manager) (appointed by the statuts which are the regulations or deed creating and governing the société civile immobilière). Since the vast majority of société civile immobilière companies are wholly passive, and do not trade in any sense, except for, perhaps, letting a property, the term ‘management’ should be tightly construed. The duties of the gérant generally consist of merely convening a routine annual AGM and signing the accounts (if any). Such a vehicle cannot be used for any other purpose.
- Although French commercial companies such as an “S.A.” have their capital divided into shares called actions, the capital of the sociétés civiles (including societies civiles immobilières) is not divided into actions but into parts d’intérêt, (participation holdings), the transfer or assignment of which is restricted. From the legal point of view, a société civile immobilière is a single purpose land holding vehicle whose only use is the purchasing and holding of property, land, and the like.
Tax treatment in France
In order to prevent situations where members shield themselves behind the veil of corporate personality, the French Tax Authorities (and French Tax Law) treat sociétés civiles and sociétés civiles immobilières as transparent from a tax point of view. The effect is that the French Revenue looks to each individual member and taxes each member’s share directly as taxable income and capital gain in exactly the same way as if the members were owners of the underlying assets in their personal names. A société civile is not required by law to file financial statements with the Clerk of the Commercial Court, as commercial companies must do, nor is there withholding tax on profits which a société civile immobilière distributes to its members, (except in the cases where a société civile immobilière has voluntarily opted for impôt sur les sociétés).
Any profits made by a société civile or société civile immobilière whose members are individuals will therefore be taxed in France as personal income tax in the hands of the individual members.
Under Article 206 of the French Code Général des Impôts (General Tax Code), a société civile immobilière will be taxed as a company with impôt sur las société only if it trades commercially, and unless it so trades, it will be outside the scope of Article 206 CGI. French capital gains tax (plus-value) for individual members is payable on any capital gains made by members in respect of their share of the gains of property sales made by the société civile immobilière.

The VAT Directive on electronic commerce have into account some OECD principles.

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa. These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

Taxable persons not established within the Community who incur VAT in connection with their business activities in a Member State in which they do not make supplies of goods or services are entitled to deduct the VAT charged in that Member State. This “deduction” is by means of a refund of VAT from the Member State in which the VAT was paid.

According to the directive, each Member State shall refund to any taxable person not established in the Member State of refund any VAT charged in respect of goods or services supplied to him by other
taxable persons in that Member State or in respect of the
importation of goods into that Member State, insofar as such
goods and services are used for the purposes of the following
transactions:
(a) transactions referred to in Article 169(a) and (b) of Directive
2006/112/EC;
(b) transactions to a person who is liable for payment of VAT
in accordance with Articles 194 to 197 and Article 199 of
Directive 2006/112/EC as applied in the Member State of
refund.

Without prejudice to Article 6, for the purposes of this
Directive, entitlement to an input tax refund shall be determined
pursuant to Directive 2006/112/EC as applied in the Member
State of refund.

To be eligible for a refund in the Member State of refund, a
taxable person not established in the Member State of refund
has to carry out transactions giving rise to a right of deduction
in the Member State of establishment.

When a taxable person not established in the Member State of
refund carries out in the Member State in which he is established
both transactions giving rise to a right of deduction and
transactions not giving rise to a right of deduction in that
Member State, only such proportion of the VAT which is
refundable in accordance with Article 5 may be refunded by
the Member State of refund as is attributable to the former
transactions in accordance with Article 173 of Directive
2006/112/EC as applied by the Member State of establishment.

To obtain a refund of VAT in the Member State of refund, the
taxable person not established in the Member State of refund
shall address an electronic refund application to that Member
State and submit it to the Member State in which he is established
via the electronic portal set up by that Member State.
L 44/24 EN Official Journal of the European Union 20.2.2008

1. The refund application shall contain the following
information:
(a) the applicant’s name and full address;
(b) an address for contact by electronic means;
(c) a description of the applicant’s business activity for which
the goods and services are acquired;
(d) the refund period covered by the application;
(e) a declaration by the applicant that he has supplied no goods
and services deemed to have been supplied in the Member
State of refund during the refund period, with the exception
of transactions referred to in points (i) and (ii) of Article
3(b);
(f) the applicant’s VAT identification number or tax reference
number;
(g) bank account details including IBAN and BIC codes.
2. In addition to the information specified in paragraph 1,
the refund application shall set out, for each Member State of
refund and for each invoice or importation document, the
following details:
(a) name and full address of the supplier;
(b) except in the case of importation, the VAT identification
number or tax reference number of the supplier, as
allocated by the Member State of refund in accordance
with the provisions of Articles 239 and 240 of Directive
2006/112/EC;
(c) except in the case of importation, the prefix of the Member
State of refund in accordance with Article 215 of Directive
2006/112/EC;
(d) date and number of the invoice or importation document;
(e) taxable amount and amount of VAT expressed in the
currency of the Member State of refund;
(f) the amount of deductible VAT calculated in accordance with
Article 5 and the second paragraph of Article 6 expressed in
the currency of the Member State of refund;
(g) where applicable, the deductible proportion calculated in
accordance with Article 6, expressed as a percentage;
(h) nature of the goods and services acquired, described
according to the codes in Article 9.

In the refund application, the nature of the goods and
services acquired shall be described by the following codes:
1 = fuel;
2 = hiring of means of transport;
3 = expenditure relating to means of transport (other than the
goods and services referred to under codes 1 and 2);
4 = road tolls and road user charge;
5 = travel expenses, such as taxi fares, public transport fares;
6 = accommodation;
7 = food, drink and restaurant services;
8 = admissions to fairs and exhibitions;
9 = expenditure on luxuries, amusements and entertainment;
10 = other.
If code 10 is used, the nature of the goods and services supplied
shall be indicated.

The Member State of refund may require the applicant to
provide additional electronic coded information as regards each
code set out in paragraph 1 to the extent that such information
is necessary because of any restrictions on the right of
deduction under Directive 2006/112/EC, as applicable in the
Member State of refund or for the implementation of a
relevant derogation received by the Member State of refund
under Articles 395 or 396 of that Directive.

The Member State of refund may require the applicant to submit
by electronic means a copy of the invoice or importation
document with the refund application where the taxable
amount on an invoice or importation document is
EUR 1 000 or more or the equivalent in national currency.

Where the invoice concerns fuel, the threshold is EUR 250 or
the equivalent in national currency.

The Member State of refund may require the applicant to
provide a description of his business activity by using the
harmonised codes determined in accordance with the second
subparagraph of Article 34a(3) of Council Regulation (EC) No
1798/2003 (1).

The Member State of refund may specify which language or
languages shall be used by the applicant for the provision of
information in the refund application or of possible additional
information.

The refund application shall relate to the following:
(a) the purchase of goods or services which was invoiced
during the refund period, provided that the VAT became
chargeable before or at the time of the invoicing, or in
respect of which the VAT became chargeable during the
refund period, provided that the purchase was invoiced
before the tax became chargeable;
(b) the importation of goods during the refund period.
2. In addition to the transactions referred to in paragraph 1,
the refund application may relate to invoices or import
documents not covered by previous refund applications and
concerning transactions completed during the calendar year in
question.

The refund application shall be submitted to the Member
State of establishment at the latest on 30 September of the
calendar year following the refund period. The application
shall be considered submitted only if the applicant has filled
in all the information required under Articles 8, 9 and 11.

The refund period shall not be more than one calendar year or
less than three calendar months. Refund applications may,
however, relate to a period of less than three months where
the period represents the remainder of a calendar year.

If the refund application relates to a refund period of less than
one calendar year but not less than three months, the amount
of VAT for which a refund is applied for may not be less than
EUR 400 or the equivalent in national currency.

If the refund application relates to a refund period of a calendar
year or the remainder of a calendar year, the amount of VAT
may not be less than EUR 50 or the equivalent in national
currency.

From an economic point of view, taxation of financial services and insurances would definitively solve the problem of increased cost of outsourcing, of trade diversions and distortions of economic decisions, because it allows a full recovery of input VAT.

From a legal point of view, taxation reduces the chances that taxpayers would challenge the adopted procedures on the basis of the general principles of the Treaties.

Furthermore, the existence of VAT exemptions combined with the absence of taxation on operations between various establishments of the same legal entities but located in different countries (ECJ, 23 March 2006, FCE Bank plc, Case C-210/04) should logically lead to the adoption of a world-wide method of recovery of input VAT for financial institutions. However this is impossible because of the different methods applicable within and outside the EU which cannot be harmonized. For example how is one to determine the right of recovery of input VAT of an entity established in one country where only the general pro rata is accepted and another country where the entrepreneur can calculate the non recoverable partial amount by fair estimations? This is probably impossible.

Similar remarks may be made about recovery of foreign input VAT, with the application of the 8th and 13th VAT Directives.

VAT exemption of some financial services

Historically, the VAT exemptions on financial services had been introduced in order to avoid consumers suffering VAT twice on credit operations, the first time on the acquisition of goods and, a second time, on the granting of a credit by financial institutions.

Since the adoption of different systems for non taxable persons and business would have been complex, the option had been taken to exempt all financial operations. This pragmatic solution presented the disadvantage that VAT on costs incurred by the financial services providers was not recoverable. At that time, this non recoverability of VAT did not matter that much since the investment in materials and outsourcing were much less important and costly than they are today.

Until now, the absence of empirical studies on the micro economic and macro economic costs of VAT on financial services and insurances made any in-depth discussion on the most efficient alternatives difficult. Maurice Lauré, the inventor of VAT, estimated that the cost of VAT exemptions for banks in France was equivalent to an increase of interest rate from 0,3 to 0,4 % (Science Fiscale, p. 271) and that this had an influence on the competitivity of the overall economy.

The opposition to the adoption of VAT on Financial Services in the early 70’s seems to have been motivated by the strong opposition of the smaller financial institutions, in particular those who are dealing mainly with private individuals. Difficulties in determination of the taxable base of financial services played also an important role. But the VAT exemptions do not allow this difficulty to be avoided. It already exists in the case of the determination of the pro-rata deduction of input VAT, as well as in the case of supplies of financial services to customers established in third countries.

In a VAT system, the determination of the taxable base is less of a method to tax (and to collect revenue) than a method of monitoring the collection of the tax at final consumers stage and to ensure the neutrality of the tax on business.

A practical consequence of this observation is that the taxable base should only be disclosed to the customers when it is strictly necessary to deduct input VAT in the chain of production of taxable supplies. In B2C, the taxable base has only to be disclosed to the tax authorities for the purpose of the monitoring of the correct application of the tax (compare with ECJ, 24 October 1996, Argos, Case C-288/94).

Salvador Trinxet Llorca

The Directive on e-commerce took effect on 1 July 2003 and introduced rules ensuring that:

a) electronic services supplied for consumption outside of the European Union are exempted from VAT;
b) when supplied for consumption within the European Union, they are subject to EU VAT.
c) non EU-operators benefit from simplified registration and reporting obligations allowing them to deal with a single European tax administration of their choice.

The novel nature of this single point for VAT compliance was a contributory factor to the insertion of a review clause which obliged the Commission and the Member States to re-visit the issue before 30 June 2006.

Now, the European Commission proposes to extend the period of application of the “e-commerce VAT” Directive (COM (2002) 38) to 31 December 2008. Without this extension, the rules for services supplied by electronic means as well as to radio and television broadcasting services would revert to those prevailing prior to the changes introduced by the Directive. This would mean that EU suppliers would be subject to VAT even for services supplied to clients outside the EU and they would face competition within the EU from suppliers in third countries that would not be subject to VAT at all. The proposal does not contain any other change.

Why is there a need to extend the Directive on e-commerce?

A report of the European Commission to the EU Council concludes that the e-commerce VAT Directive has operated in a satisfactory manner and has achieved its objective of creating a level playing field for the taxation of electronic services. It recommends to extend the period of application of this Directive to 31 December 2008 or until more permanent wider measures are in place.

Without this extension in time, the VAT rules would revert to those prevailing before the e-commerce Directive was introduced.
The temporary provisions contained in the Directive will be given permanent effect when the EU Council of Ministers adopts the proposals from the Commission on the place of taxation of services and on the simplification of VAT obligations (the so-called proposal for “One Stop VAT Shop”). The One Stop VAT Shop scheme would allow traders to carry out their VAT obligations for all EU wide activities in the Member State where they are established. Traders could use a single VAT number for all supplies throughout the EU and make their VAT declarations via a single electronic portal.

The extension proposed should allow sufficient time for the adoption of these proposals.

Salvador Trinxet