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The fight against fraud and tax evasion has become a priority of world economic powers. To meet its commitments to international level, France has changed its legislation in this area in the FAA 2009. However, the new device is not perfect and is easily avoidable. At the first summit of the G20 held in London April 2, 2009, states have made the fight against tax havens a priority to restore confidence in our financial system and the crisis.

States are thus committed to deploy sanctions against countries that fail to meet the standards of the Organization for Economic Cooperation and Development (OECD) on tax transparency. Following the recent summit of the G20 (Pittsburgh, September 2009), new measures against tax havens should take effect from 1 March 2010.

In this context, France has taken its provisions and has included in his new body of law anti-avoidance devices for transactions with a Non-Cooperative Territory (NCT) in the Supplementary Budget Law (LFR) for 2009.

What is an NCT?

Are considered uncooperative under new Article 238-0 A of the General Tax Code (CGT), all states or jurisdictions that do not meet the following four conditions on the date of 1 January 2010:

- Do not be members of the European Union (indeed, the consequences of this device would be contrary to freedom of establishment and free movement of capital);

- Have been reviewed by the OECD in terms of transparency and exchange of information in tax matters;

- Do not be concluded with France a convention on administrative assistance for the exchange of any information necessary for the implementation of tax legislation;

- Do not have signed with at least 12 states or territories, an agreement on administrative assistance for the exchange of any information necessary for the implementation of tax legislation.

A first list was published in the Official Journal February 17, 2010 by order of 18 countries. This list will be updated on 1 January each year. This annual update may change periodically countries and territories deemed non-cooperative, thereby creating a risk of legal uncertainty for multinationals. Indeed, from one year to another, these companies could face an additional deduction on income distribution because they have an establishment in a country become a NCT. However, for countries entering NCT the list at No. 1 January, the penal provisions come into force for the transactions with these countries until 1 January N +1. This delay will allow companies doing business with such countries to take appropriate action.

An increase in withholding taxes (taxation at source - TAS)

Effective 1 March 2010, the new legislation provides for a withholding tax or a levy of 50% on:

> certain non-wage income paid in NCT such as French royalty as compensation for copyright or amounts paid in return for a service carried out or activity carried out in France ;

> incomes of artists pay a service carried out in France;

> income distribution, particularly the dividend, by a French company to a natural or legal person not resident in France established or domiciled in an NCT;

> products of fixed income investments such as interest on loans paid by a French company to a beneficiary residing or established in NCT ;

> gains from sale of French social law made by persons domiciled in a ETNC.

Most withholding taxes and compulsory levies above may be exempted from the surcharge if the debtor demonstrates that these amounts correspond to actual transactions that have primarily an object and a purpose other than to allow their localization in a state territory or uncooperative.

Example 1: Payment of dividends in NTC

The new device provides a TAS of 50% will apply to all dividends paid by a French company to a person or body in an TNC. Thus, for a dividend of € 100, the shareholder will receive only 50 € for the bank in charge of the transfer should take the TAS to 50% and paid directly to the Treasury.

It is interesting to note that the TAS of 50% applies when payment is made in an NTC. The place of domicile Tax beneficial owner matter. Therefore, if the dividends are paid in an account located in Saint Lucia but are immediately transferred to an account in the United States, the TAS of 50% will apply even if the beneficial owner is resident in the United States.

2nd example: payment of interest in a NCT

The scope of the TAS is extended to the payment of interest in NCT. However, of the law provides an exception: the levy is not applicable if the debtor (French company) demonstrates that the income and proceeds were paid for an object other than allowing the location in an NCT.

This new provision creates Legal uncertainties. Indeed, for loans concluded before the new rule into force, it is necessary to know about who will weigh the extra cost triggered by the increased rate of TAS. Some loan contracts contain clauses or gross-up which are borne by the debtor company the cost induced by the increase of the TAS. To avoid pressure on French companies that charge extra, and limit the legal uncertainty induced by this new regulation, the law made an exception: the TAS does not apply to products from loans contracted before 1 March 2010 or from 1 March 2010 but comparable to a loan contracted before that date.

In addition, this new rule is a source of difficulty for the bonds. Indeed, the bond issuer does not always know the residence of bondholders and may support a SAR of 50% if they are residents of an NCT.

Furthermore, from 1 January 2011, certain pension benefits are removed such as the parent company system. Thus, dividends paid by a company established in an NCT can no longer enjoy an exemption from taxation on dividends.