Tax Agents and the Sale of Property

Wednesday 15 June 2011

The obligation for non-residents to appoint a ‘fiscal representative’ has been condemned by the European Court.

Numerous laws in France require that non-residents are obliged to appoint a représentant fiscal in relation to certain of their dealings with the French tax authority.

Companies operating in France will be familiar with the rule, but it also applies equally to non-resident individuals, notably in relation to the sale of property in France.

The obligatory representative frequently comes as some surprise to sellers, as the cost is up to 1% of the selling price of the property.

Only where the sale value of the property is less than €150K, or for properties owned for at least 15 years (and thereby exempt from capital gains tax) is dispensation granted from this rule. Private companies are always required to use a fiscal agent.

The role of the fiscal representative is simply to verify that the correct amount of tax is being paid on the transaction. Just why this should be necessary when the notaire has a duty to ensure the proper recovery of taxes is not entirely clear.

These representatives are accredited private companies and as they are relatively unknown to non-residents, they are frequently appointed by the notaire at the time the sale takes place.

The European Court, in a recent case* concerning Portugal (where the same procedure applies) has recently decreed that such a requirement is contrary to European law, because it is discriminatory and against the free movement of capital within the EU.

The Portuguese government argued that such a practice was necessary to combat tax fraud, but this was not a view accepted by the court, who considered that a general presumption of tax fraud was not adequate to justify a breach of European rules.

The decision has implications for any other country in the EU that adopts the same practice, and would seem to require that France alters its rules to abolish the requirement for a fiscal representative.

We asked the French government for their response to this decision, but they declined to comment.

*5 mai 2011 C 267/09 Commission / PORTUGAL

This article was featured in our Newsletter dated 15/06/2011