Granting of an appeal regarding the 25% surcharge for failure to hold an annual general meeting in cases of engaging in a hidden business activity
In a judgment dated December 7, 2023 (ECHR, Dec. 7, 2023, No. 26604/16, Waldner v. France), the European Court of Human Rights ruled that the 25% surcharge imposed for failure to join an approved management center or association was contrary to Article 1 of Protocol No. 1.
In a ruling dated May 31, 2024, the Paris Administrative Court of Appeal considered the case of a taxpayer who had engaged in undeclared business activities and had failed to file a tax return for those activities. The Court held in its ruling that the European Court of Human Rights“has not deprived States of the ability to apply the tax base surcharge provided for in Article 158-7(1) of the General Tax Code, where the taxpayer’s bad faith is established within the framework of a system based on the presumption of good faith in taxpayers’ returns” (Paris Administrative Court of Appeal, May 31, 2024, No. 23PA04629). Since the taxpayer had conducted his business covertly, the Administrative Court of Appeal had refused to waive the 25% surcharge.
Yesterday, the Conseil d'Etat the taxpayer’s appeal against the ruling of the Administrative Court of Appeal and is therefore expected, within about a year, to rule on the Court’s reasoning and, in particular, on whether the European Court’s ruling applies even in the absence of good faith on the part of the taxpayer.
This decision by Conseil d'Etat shed light on the application of the 25% surcharge in certain cases involving deemed distributed income or in the context of Article 123 bis of the General Tax Code.