A court ruling highlights the liability to capital gains tax of a property held via a non-resident SCI.

A Société Civile Immobilière (SCI) is a company structure that is used for the purchase and management of real estate.

The structure is most frequently used when a property is being purchased by several individuals, who may be from the same or a different household.

One of the distinguishing features of SCIs is that they are fiscally transparent. That is to say, the owners are taxed as individuals, unless, in rare cases, the owners have opted for company taxation.

In the recent case, non-resident owners of an SCI contested the imposition of capital gains tax and social charges of €80,461 on the sale of a property in the Herault department of France.

Under the French tax code there is a specific exemption against capital gains tax for property owned by former EEA residents of France, provided (inter alia) they had lived in France for at least two years continuously at any time prior to the sale.

The clause states:

In respect of the transfer of a dwelling located in France when the transferor is a natural person, not resident in France, a national of a Member State of the European Union or of another State party to the Agreement on the European Economic Area that has concluded an administrative assistance agreement with France with a view to combating fraud and tax evasion and on the condition that they had been domiciled for tax purposes in France continuously for at least two years at any time prior to the sale (...) ".

As can be seen from the text, the exemption is only granted to ‘natural persons’. That is to say, individuals, not corporate structures.

The SCI owners argued in court that the legislator did not seek to make a distinction between property held by individuals directly or through a company structure, and that the fiscally transparent nature of an SCI granted the owners the same rights.

The owners otherwise met the conditions for exemption under the clause.

The court refused to accept the claim ruling that the SCI was not a natural person and that therefore the exemption did not apply, stating:

"It follows from the very wording of these provisions that only transfers of immovable property carried out by natural persons may benefit from the exemption provided for in... the General Tax Code, to the exclusion of those carried out through a partnership, even if it is transparent. Therefore, SCI X is not justified in maintaining that those provisions should be read as allowing the capital gains exemption for transfers made by partnerships whose partners meet the conditions. As the disputed sale was carried out by SCI X and not by a natural person, the tax authorities were right to refuse it the benefit of this exemption."