Impacts of the federal court decision on the tax treatment of SCI shares in France for Swiss taxpayers
INTRODUCTION
The ownership of secondary residences in France through a Société Civile Immobilière (SCI) is a common practice among Swiss taxpayers. However, the Federal Court decision of December 13, 2022 (no. 2C_365/2021) provides significant clarifications on the tax treatment of these shares in France and its impact on Switzerland.
TAX TREATMENT OF SCI IN FRANCE
The tax status of SCIs in France can vary. SCIs can be either taxed as legal entities subject to corporate tax or as a look through company with direct taxation on the SCI's partners. This distinction has direct tax implications in Switzerland, especially on the wealth tax base and tax rates.
CONSEQUENCES IN SWITZERLAND
Depends on the taxation of SCI Shares:
If the SCI is treated opaquely in France, SCI shares are generally considered as securities, impacting the wealth tax base in Switzerland.
Conversely, if the SCI is treated transparently in France, the property held by the SCI should, according to conventional provisions, only be considered for determining the tax rate in Switzerland. France should keep its right to tax as a real estate property.
ANALYSIS OF THE FEDERAL COURT DECISION
The Federal Court decision emphasized that the exemption of wealth tax in Switzerland is conditioned on effective taxation in France, according to Article 25B, paragraph 1 of the Double Taxation Convention between Switzerland and France. If the property does not exceed a value of € 1,300,000 and no effective taxation occurs in France, Switzerland retains the right to impose taxes.
CONCLUSION
This Federal Court decision highlights the importance of the fiscal distinction of SCIs in France and its direct impact on Swiss taxation. Swiss taxpayers holding SCI shares are advised to carefully examine their situation, considering new conventional interpretations and rules regarding the elimination of double taxation, as clarified by this decision.
The Swiss tax impact of subjecting the SCI to corporate tax further extends the repercussions of furnished rental activities carried out in the property. Indeed, the requalification of the SCI tax regime into a corporate tax entity would attract Swiss wealth tax on the shares value.
The use of a Monegasque SCP by Swiss residents for property ownership in France is an interesting alternative to the French SCI. However, this option should be reconsidered in light of this new jurisprudence, especially considering the absence of a tax treaty between Switzerland and Monaco.
