France’s diverted profits tax ruled unconstitutional

by Davide Anghileri

France’s Constitutional Council on 29 December struck down France’s controversial diverted profits tax law, finding it unconstitutional. The Council also ruled in the same decision that changes to the financial transaction tax are constitutional. Both provisions were included in Finance Bill 2017, passed by Parliament in late December.

In Decision 2016-744 DC, the Council focused on aspects of the diverted profits tax law which give the French tax authorities discretion regarding whether to invoke the diverted profit tax rule during a tax inspection, noting that the law does not provide details about this procedure.

According to the Council, this provision is unconstitutional for lack of competence (incompétence négative) as it violates article 34 of the French Constitution, which provides that “statutes shall determine the rules concerning . . . the base, rates and methods of collection of all types of taxes.”

The Council said the legislature has the right to tax profits made in France by companies established outside the national territory; however, it cannot, without disregarding the scope of its competence, make liability to tax subject to the discretion of the administration to initiate a monitoring procedure.

In fact, as we can infer from the jurisprudence of the Council, when making provision for a tax, the legislator must determine the procedures for its recovery, including rules on controls, recovery, disputes, guarantees and penalties applicable to that taxation.

In the same decision, France’s Constitutional Council upheld a provision that extends the application of the French financial transaction tax to intraday transactions as from 1 January 2018.

A group of deputies argued that this provision is also contrary to article 34 of the Constitution; however, the Council ruled that the legislator sufficiently defined the rules for the recovery of the tax.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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