Tax Study

Tax Treatment of a French société civil immobilière in the United Kingdom
Changes have been afoot in the way that the Inland Revenue treats sociétés civiles immobilières and their members who own residential properties in France. The Revenue has suggested that it considers a société civile immobilière as equivalent to a company for UK tax purposes on the basis that it is a legal entity separate from its members and one whose profits accrue to the entity itself rather that to the members. Recent cases (particularly R v. Allen [2001] UKHL 45) give concern as to the consequencesof this view.
1. What is a société civile immobilière?
French sociétés civiles immobilières are often used to acquire and hold residential properties in France. This gives a form of corporate ownership with minimal French tax consequences and allows owners of properties in France to organise their property holdings effectively and carry out some estate planning by turning French immovable property subject to French succession law into movable property subject to the law of the individual’s domicile .
1.1. Some general remarks on French company law
French sociétés are different from English companies. The word “société” can be used to describe either what we, in England, would call a company, firm or a partnership. French sociétés are divided into the following general categories:
– société commerciale – a company that is formed for the purposes of trade;
– société civile – an entity (company or partnership) that does not primarily trade;
– société de capitaux – a company with limited liability and where subscribers or shareholders provide its capital;
– société de personnes – an entity with unlimited liability which groups persons together rather than capital.
A French société is subject either to impôt sur les sociétés (corporation tax) or it is “fiscalement transparent” which means that the société itself is not taxed collectively in any way (either for corporation tax or for capital gains tax, etc.), but each member is directly taxed on profits or gains made (as in an English partnership). In the United Kingdom, this is sometimes referred to as a ‘see through’ entity and by the United Kingdom Revenue as transparent. In some types of sociétés, an option can be exercised by the members either for it to be assessed for impôt sur les sociétés or transparence fiscale.