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bigduckontax, Accountant
Category: Tax
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Hi I am just wondering could you provide some tax advice

Customer Question

Hi
I am just wondering could you provide some tax advice in relation to an international tax issue re; an Irish couple forming a limited company in France?
Can I send details by email? What is your email address?
Many thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question. I fear that my advice may be a trifle unpalatable.
The general view of most experts on this site is as follows. French taxation is in a constant state of flux and is excessively complex. France has five times as many tax inspectors per head of population than the UK. It is essential to employ a French professional is such matters.
So sorry to have to be so unhelpful, but that is the reality.
Customer: replied 2 years ago.

Hi Keith,

Yes French tax is complex. I will send you the issue anyway! See below;

Thanks

A couple- Tom & his wife have an Irish established food company with shops/outlets in Ireland. Tom works for the co. in Ireland. His wife does not.

The co. has taken a lease on a shop premises in France as Tom thinks that there is a market there to sell Irish food from Irish suppliers.

The co. will employ a French person to run the business in France and hopefully this person will expand the business so that other shops can be set up in France and the co. will also employ French staff to work in the French shop.

If the retail outlet in Paris is successful, Tom and his wife may set up a co. in France in 2016 through which the growing business in France would be operated.

The new French co. would be owned by Tom and his wife on a 50/50 basis and the Irish co. would TRANSFER the French operation to the French co.

Tom and his wife feel that if they develop a successful business in France, they are likely to be in a position to sell the business at a substantial profit in the future to one of the large retailers in France.

-Tom and his wife have asked for an outline of the Irish tax issues associated with this proposal, including the timing of the establishment of the French co.

-They also asked for tax advice on whether they should own the French co. directly or whether the French co. and the Irish co. should be part of a group structure.

Expert:  bigduckontax replied 2 years ago.
French corporate tax rates are 33.3% of profits. This has, in fact, been constant for all of a decade. If Tom and his wife do decide to operate there, particularly under a corporate umbrella, then the employment of local professionals is essential.
Irish Corporate tax rates are 12.5% of profits. The same note applies. You can see a significant difference in rates which probably explains why Ireland is regarded as a tax haven.
Here is Price Waterhouse Cooper's advice on corporate structures:
'A French subsidiary can be included in a tax consolidated group even if its parent company is not located in France. However, at least 95% of the share capital of the foreign company must be held, directly or indirectly, by the French company that is head of the tax consolidated group. In addition, the foreign company must be subject to CIT, be located in the European Union or in a member state of the European Economic Area whose tax treaty with France includes a mutual administrative assistance clause to fight tax fraud and tax evasion, and hold 95% of the lower-tier subsidiary’s shares.'
You will see that this can be done, but whether the administrative costs would outweigh the tax advantages is a moot point.
Frankly, this matter is so convoluted viz a viz the taxation regimes involved that it should not even be considered without independent professional advice. By the way, Just Answer protocol precludes experts from exchanging email addresses with customers, so sorry.
Customer: replied 2 years ago.

Many thanks Keith- see vat query

Co. X took a long lease on a shop property 10 years ago in Ireland. The capitalized value of the lease for VAT purposes was €6m 10 years ago.

This was quite a large building so the co. had extra space and let out a quarter of the building to another retail outlet in 2004 for a ten-year period. So this was a letting of a ‘short’ lease.

However, Co. X (the Irish co.) did not waive its exemption from vat on short-term lettings.

So the question is- what vat exposure does Co. X have at this stage in relation to the lease and how should it be dealt with at this stage?

Expert:  bigduckontax replied 2 years ago.
Co X may reclaim the VAT paid on acquisition of the long lease to offset any VAT added to rentals of the short term leases. Co X had no grounds to 'waive its exemption;' it does not appear to exist as all lettings are exempt from VAT. The position of VAT on short term rentals is summarised by Parfrey Murphy [Chartered Accountants] as follows:
'The pre 1 July 2008 distinction between long term and short term lettings has been discontinued. Under the new system all lettings are exempt from VAT. However the landlord still has the option to tax the letting and charge 21% VAT on rents. If the joint option to tax is not exercised, the landlord will suffer a clawback (time apportioned to reflect the remaining VAT life of the property) of the VAT previously recovered on the acquisition or development of the property.'
Please note that entering VAT this is an entirely new dimension and should have been the subject of a separate question under Just Answer protocol.
Please don't forget my rating.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3615
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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