DIVYA PADMANABHAN ROLL NO.: 861

OVERVIEWLeasing in France is seen as a part of the banking system, mainly because

leasing with an option to buy falls within the scope of the banking regulations. Leasing offers practical advantages to the lessee.

The lessor is entitled to a special guarantee through his right of ownership.Cross border operations are not subject to stringent exchange control rules

and France is a country of legal ownership, which can provide opportunities for double tip transactions with countries where economic ownership prevails

French tax legislation offers certain advantages, in particular, for domestic transactions involving French partnership lessors (transfer of losses to investors), cross border transactions (benefice network), or green business financing (specific tax incentives)

EQUIPMENTS AND AUTOMOTIVES LEASING IN FRANCE

REAL ESTATE LEASING

LEGAL ISSUESUnder French law, a fundamental distinction is made

between: 1.The mere lease of assets without an option to purchase

granted to the lessee(location simple)2.The leasing of an asset with an option to purchase given to

the lessee within the leasing agreement

The mere lease of property is subject to the Civil Code’s Rules(Article 1709)

REGULATORY ISSUESCredit institutions engaged in leasing operations are subject

to the banking and financial regulations applicable to their status and activity.

Companies engaged in mere operational leases have no regulatory obligations in this respect

Rental income received by the French resident company is liable to corporate tax at a flat rate of one third plus an additional tax of 1.10 percent called ‘contribution sociale’.

SPECIAL TAX TREATMENT OF LEASING COMPANIES: Gains (or losses) realised by a lessor on the sale of leased equipment are always treated as ordinary income (or losses), subject to corporate taxes at the standard rate.

The new version of tax lease under Article 39C of the French Tax Code applies to lease agreements signed on or after 1 January 2007.

The single investor tax lease :The single investor tax lease also relies on the ability of the lessor to offset losses created by accelerated tax depreciation in the early years of the lease against profits of other companies in its consolidated tax group.

TAX ISSUES

INTERNATIONAL LEASING IN FRANCEAn International Lease is a cross-border lease i.e. where the lessor

and the lessee are situated in 2 different countries, so that the goods are held in different legal system with respect to the system in which the title is held.

As from January 1, 2010, a new French transfer pricing documentation requirement, codified as Article L13AA, has been made applicable for cross-border transactions involving notably leasing transactions

The French leasing sector has shown a significant fall in activity in the final quarter of 2012.