The tax life of algorithms Nr. 2.

The tax life of Algorithms / 2. As with humans, the reward/reinforcement mechanism has become the centerpiece of algorithm performance. At least that's what a recent MIT study suggests, revealing notably, that some neurons are more optimistic while others are more pessimistic. https://www.technologyreview.com/2020/01/15/130868/deepmind-ai-reiforcement-learning-reveals-dopamine-neurons-in-brain

Question: how is this system designed in terms of taxation? Not easy to answer since tax algorithms dislike exposure (cf.post#1).

At least we know that in their frantic attempts to approach reality, deep learning algorithms are often motivated by a 'reward' such as an 'optimization criterion'. This can be highly frustrating for those who know how important 'the appearance theory' or even 'realism', are in French tax law, let alone the adversarial principle - still valued by some.

La vie fiscale des Algorithmes / 2. Comme chez les humains, le système de récompense/renforcement est devenu la pièce maîtresse de la performance chez les algorithmes. C’est en tout cas ce que suggère une étude récente du MIT https://www.technologyreview.com/2020/01/15/130868/deepmind-ai-reiforcement-learning-reveals-dopamine-neurons-in-brain/ mettant notamment en évidence que parmi les neurones, certains sont plus optimistes et d’autres plus pessimistes.

Question : comment est conçu ce système en matière fiscale ?

Pas facile d’y répondre, les Algorithmes fiscaux n’aimant guère la lumière comme on le sait (cf.post#1). On sait au moins que dans leur quête éperdue d’approche de la réalité, les algorithmes soumis à cet apprentissage profond sont souvent stimulés par une « récompense » de type « critère à optimiser ». La frustration est donc grande, lorsque l’on sait l’importance en droit fiscal français de « l’apparences » ou encore du « réalisme », sans parler du principe du contradictoire, encore cher à certains.

The tax life of algorithms Nr. 1.

The tax life of Algorithms / 1. “To live happily, live hidden".  

In France’s “tax jungle”, it wouldn’t be an exaggeration to say that if smart creatures want to thrive, they should stay under the radar.  It was ruled that the French Tax Administration has no obligation to disclose to taxpayers the algorithms it has used or intends using to establish upward adjustments (Conseil d’Etat, May 4, 2018, No. 410950). The following sums it up rather well: “Should we (FTA) reveal the algorithm, you could use it with malicious intent …”.

La vie fiscale des Algorithmes / 1. « Couvrez ce sein que je ne saurais voir (…). ».

Dans la jungle fiscale française, il faut croire que les petites bêtes intelligentes doivent, pour prospérer, vivre à l’abri des regards. Ainsi jugé que l’administration n’a aucune obligation de communiquer au contribuable les algorithmes qu’elle a utilisés ou envisage de mettre en œuvre pour établir les rehaussements (Conseil d’Etat 4 mai 2018, n°410950). Entre autres explications, peut-être celle-ci, esquissée plus haut : « Par de pareils objets les âmes sont blessées et cela fait venir de coupables pensées. » (Tartuffe, Acte III, scène 2).

Articles translated by Deniz Gulan: Family offices - International Tax Litigator, Alain Legendre

Now more than ever, Family Offices are expected to provide state-of-the-art multi-disciplinary advice, based on a dual approach:

1) preservation of family coherence
2) long-term intergenerational vision.

Though the adviser is inevitably a forward thinker, he constantly fears that the tax administration will challenge the carefully crafted strategic balance chosen by the family or families in question.

I have observed time and again that tax advice given on such projects, which often have international reach, fails to take sufficient account of the potentially litigious tax approach of a given country (which may consider itself concerned by a specific operation), deeming such issue to be premature. Yet, failure to address the issue could derail any strategic choices made. Conversely, anticipating it from the outset can be a game changer. Yet the family office needs to know exactly how to tackle the tax administration's approach to litigation.

In France, only a tax litigator with in-depth experience of the mechanics of tax litigation before France's highest tax jurisdictions i.e. the Council of State ("Conseil d'Etat") and the Court of Cassation ("Cour de Cassation") has the required insight and expertise. Experience gained at this level goes far beyond the mere interpretation of case law, which is within the scope of any tax attorney or adviser.

I can provide you with such insight and expertise having more than 20 years’ experience in tax litigation with France's highest jurisdictions, which is extremely rare for a French attorney at law.

Let’s say for instance, an American or Saudi family with worldwide ramifications plans to invest 2/3 of its fortune, across several generations, in combating and preventing Covid-19 type pandemics, as well as in the fight to preserve the future of humans in artificial intelligence.

The Family will certainly be advised to diversify its investments and wealth across multiple countries, including France, using various vehicles such as foundations, equity investments, creation of holdings, groups of companies and purpose-built start-ups, and real estate acquisition.

Family offices can of course advise on a range of more or less complex options aimed at being sustainable over time and tax optimized.

However, from the moment that the family in question has the slightest interest in France, the French Tax Administration is entitled, in principle, to tax it on its worldwide assets/income, by means of a highly complex and powerful set of tools at its disposal.

For this reason, family offices should above all bear in mind that the tax situation in France of any taxpayer (individual or company) is assessed by the French Tax Administration first and foremost under French law, even if subsequently, depending on the case, international law and other domestic laws have to be taken into consideration (such as the Franco-Saudi Tax Treaty for the characterization of a start-up as a ‘virtual permanent establishment’).

Next, family offices should be familiar with how France’s highest jurisdictions - the Council of State ("Conseil d'Etat") and the Court of Cassation ("Cour de Cassation") - exercise control over the concepts of abuse of law, the distinctions between fact, right and qualification, and even the famous principle of the ‘autonomy of tax law’, which allows the French Tax Administration to interpret legal concepts as it deems appropriate (whether from civil law, industrial property law or even banking law).

Above all, they should be aware of how in practice, sometimes even ten years on, tax disputes in France are initiated and ruled on by France's highest jurisdictions, which have been known to render all sorts of contradictory decisions over the years.

Unfortunately, experience shows that family offices rarely have such insight when it comes to devising strategic priorities for families.

This is precisely where I come into play, not in competition with you, but to complement your expertise, giving you that edge over your competitors and your clients.

Feel free to contact me should you need any clarification or have any questions, bearing in mind that I work on these aspects in tandem with my colleague Deniz Gulan, paralegal specialized in tax matters.

Tax news articles translated by Deniz Gulan

“Reprise” en France : choix d’aujourd’hui et contentieux fiscaux de demain. RECOMMANDATION N°9 aux franco-américains croyant à l’intervention d’un juge avant toute ponction du fisc sur leurs actifs.

Une saisie de vos actifs, sur vos  comptes bancaires par exemple,  sans autorisation d’un juge ? L’administration fiscale française en a le droit, grâce à deux outils juridiques spécialement fabriqués pour elle au nom de l’intérêt général, et difficilement imaginables pour un anglo-saxon:

#1.Un droit administratif et fiscal dérogatoire au droit commun.

#2.Le privilège de « l’exécution d’office », permettant au fisc de faire exécuter ses propres décisions, illégales ou non. Bien sûr, le juge pourra intervenir, mais seulement après-coup, et si le contribuable décide de s’engager dans un contentieux, qui peut être long et coûteux.

Ne négligez pas les courriers qui vous sont adressés par la FTA , et parlez-en tout de suite à un spécialiste du contentieux fiscal!

The “New Dynamic” in France.  Today's choices - tomorrow's tax disputes. TIP # 9 for Franco-Americans who think that the French Tax Administration won’t make a tax grab on their assets without a court order.

You think that your tax debt cannot be seized from your bank account without a court order? Think again. The French Tax Administration is entitled to dip into your bank account by virtue of two legal mechanisms specifically designed for it, in the name of public interest. Though such concept might appear inconceivable to those who are familiar with common law:

#1:   Administrative and tax law that derogates from common law.

#2: The privilege of ‘ex officio execution’, allowing the French Tax Administration to enforce its own decisions, whether lawful or not. Of course, the courts may intervene, but only after the horse has bolted, and if the taxpayer decides to take legal action against the FTA, which can be a long and costly process.

My advice is to take heed of the reminders sent by the FTA and contact an international tax litigator right away to make your case for you.

Tax news articles translated by Deniz Gulan

The “New Normal” in France.  Today's choices - tomorrow's tax disputes. TIP # 8: for Franco-Americans who are confident they have made smart tax choices.

Past experience shows that in the event of a tax audit, or even later on in court, the Franco-American taxpayer (company or individual) takes for granted that everyone, even in France, speaks or should at least be able to understand English. Such an assumption can prove fatal.
These taxpayers usually concede they have much to gain from spontaneously presenting their English accounting records with a corresponding sworn translation into French. But they usually learn too late that other even seemingly trivial documents (such as receipts or copy of ID) provided to the French Tax Administration or the court in support of their case, could be rejected purely because they have not been translated.
Once again, nothing beats forward planning!

Nouveau « normal » en France : choix d’aujourd’hui et contentieux fiscaux de demain. RECOMMANDATION N°8 aux franco-américains confiants dans leurs bons choix fiscaux.

 L’expérience montre qu’en cas de contrôle fiscal, voire même plus tard devant le juge, le contribuable franco-américain (entreprise ou particulier) part du principe que tout le monde, y compris en France, comprend ou doit nécessairement pouvoir comprendre l’anglais. Ce présupposé peut être fatal.

En général ce contribuable admet qu’une comptabilité tenue en anglais gagne à être présentée spontanément avec une traduction en français certifiée par un traducteur ad hoc. Mais il apprend souvent trop tard que les autres documents, même anodins (par exemple simple reçu, ou copie de passeport), qu’il a communiqués au fisc (ou au juge fiscal) à l’appui de sa démonstration, peuvent être écartés au seul motif qu’ils ne sont pas traduits. Ici encore, rien ne vaut l’anticipation.

Tax news articles translated by Deniz Gulan

The “New Normal” in France.  Today's choices - tomorrow's tax disputes. TIP # 7: for Franco-Americans looking to launch a start-up for R&D in Artificial Intelligence. The French tax system is innovation friendly, as shown by the craze surrounding the status of “innovative start-up” which boasts temporary total and then partial exemption from personal or corporate income tax. However, watch out for the very costly implications (back payment of tax dodged, late payment interest, plus a 40% fine) should the French Tax Administration challenge this status some years after its launch, on the grounds that the company is not truly new! Such is the case for example, if the French Tax Administration decides that “in reality” the start-up was created in France “as part of the restructuring of pre-existing activities” of a US registered corporation under US law. Another good reason to get your investment project assessed by an international tax litigator in France beforehand!

Nouveau « normal » en France : choix d’aujourd’hui et contentieux fiscaux de demain. RECOMMANDATION N°7 aux franco-américains voulant créer une start up pour une activité de recherche en intelligence artificielle. Le dispositif fiscal français en la matière est séduisant, comme le montre l’engouement pour le statut de « jeune entreprise innovante » (exonération temporaire totale, puis partielle, d’impôt sur le revenu ou sur les sociétés). Mais attention aux remises en cause très coûteuses (paiement des impôts éludés, intérêts de retard et amende de 40%) de ce statut par le fisc quelques années après le démarrage, au motif que l’entreprise ne serait pas… réellement nouvelle ! C’est le cas par exemple lorsque le fisc établit qu’« en réalité » la start up a été créée en France « dans le cadre de la restructuration d’activités préexistantes » d’une société de droit américain immatriculée aux USA.
Quel dommage de ne pas avoir fait expertiser ce projet d’investissement en France par un spécialiste du contentieux fiscal !

Tax news articles translated by Deniz Gulan

France emerging from COVID-19.  Today's choices - tomorrow's tax disputes. TIP # 6 for Franco-Americans:  Beware of speculation on the French tax treatment of bitcoins!

Part and parcel of the blockchain, bitcoin transactions which are characterized by their complete anonymity, can spark accounting and tax "creativity". Due for instance to the difficulty the French Tax Administration has in exercising its right of communication, in tracking capital gains when bitcoins have been exchanged for personal property, and above all, in taxing bitcoin transactions effectively. Though the French tax machine is gaining ground in this area. Up to now, bitcoins have been rather smartly and loosely qualified as "intangible personal property". The circumstances of their disposal (e.g. whether occasional or habitual; for what purpose...) will determine their taxation category (BNC, BIC, capital gains...).  For such a strategic issue, be sure to get an International Tax Litigator to advise you.

Sortie COVID-19 en France : choix d’aujourd’hui et contentieux fiscaux de demain. RECOMMANDATION N°6 aux franco-américains.  Gare aux spéculations sur la fiscalité française du bitcoin !

Indissociables de la blockchain, les opérations en bitcoins, caractérisées par leur parfait anonymat, peuvent susciter la « créativité » comptable et fiscale. En raison par exemple de la difficulté pour le fisc d’exercer alors son droit de communication, de tracer les plus-values de cession en cas d’échange de bitcoins contre des biens meubles, et surtout de taxer effectivement les transactions en bitcoins. Mais la machine fiscale française avance dans ce domaine.

A ce jour, les bitcoins ont reçu la qualification astucieuse et minimaliste de « biens meubles incorporels ». Les circonstances de fait (par exemple à titre occasionnel ou habituel ; dans quel but…) de leur cession conditionnent leur imposition (BNC, BIC, plus-values…). Cette question est stratégique; faites expertiser votre choix par un spécialiste du contentieux fiscal !

Tax news articles translated by Deniz Gulan

France emerging from COVID-19. Today's choices - tomorrow's tax disputes. TIP # 5 for Franco-Americans: beware of misleading terms!  

French tax law has its reasons, which all too often exceed taxpayers’ reasoning. Indeed, the principle of the “autonomy of tax law” can contain unexpected implications. An example is the determination of taxable profit, which differs from the accounting profit reported in the balance sheet. Another could be tax territoriality, for which tax law determines the tax residence, which differs from the concept of residence under civil law, without excluding it.   What’s more, the General Tax Code (CGI) is not the only code applicable in tax matters. The French Tax Administration may well tax you pursuant to a text from another code (e.g. Labor Code, Civil Code, Commercial Code), sometimes based purely on its interpretation of the wording.  For instance, the “actual purchase price” within the meaning of the Commercial Code is not tantamount to the “purchase price" within the meaning of the CGI.

Sortie COVID-19 en France : choix d’aujourd’hui et contentieux fiscaux de demain. RECOMMANDATION N°5 aux franco-américains : méfiez-vous des faux-amis ! 

Le droit fiscal français a ses raisons, que la raison du contribuable ignore…trop souvent. Ainsi, le principe de « l’autonomie du droit fiscal » réserve des surprises. Par exemple pour déterminer le bénéfice imposable, lequel diffère du bénéfice comptable figurant au bilan. Ou pour la territorialité de l’impôt : la détermination par la loi fiscale du domicile fiscal n’est pas celle du domicile au sens du droit civil, même si elle ne l’exclut pas. Mieux encore : le code général des impôts (CGI) n’est pas le seul code applicable en matière fiscale. Le fisc peut parfaitement vous taxer sur le fondement d’un texte issu d’un autre code (code du travail, code civil, code de commerce par exemple), parfois en se fondant sur sa seule interprétation des mots. Ainsi le « prix d’achat effectif » au sens du code de commerce n’est pas assimilable au « prix d’achat » au sens du CGI.