Is running a golf course a lucrative business?
A sports association that considered itself to be engaged in a non-profit activity—namely, managing a golf course—wished to establish a wholly owned subsidiary to carry out activities that it considered profitable but that would remain secondary to its main activity.
The association wanted to ensure that the creation of this company would not result in it being classified as a for-profit entity, which would subject it to corporate income tax and require it to charge VAT on its services. It therefore filed a request for a ruling withadministration .
That was a mistake on his part, asadministration initially responded that his original assessment was incorrect and that his activity—whether conducted through a company or not—should already be considered a business activity and therefore subject to corporate income tax and VAT. The association then requested a second review of its ruling request, butadministration their initial assessment.
She then filed a lawsuit to have the ruling overturned. However, in principle, a taxpayer is not entitled to seek the annulment of a ruling in court. There are rare exceptions to this principle, such as for rulings requested by a professional organization or when the application of the ruling“would result in significant non-fiscal effects and, as such, the route of full-fledged litigation before the tax court would not allow the taxpayer to obtain an equivalent result”(Council of State, Section, Dec. 2, 2016, No. 387613, Published).
The Paris Administrative Court of Appeal ruled that, contrary to the Administrative Court’s decision, the association could invoke this second exception and was therefore entitled to challenge the tax ruling. It noted in particular that, by not applying VAT and not paying corporate income tax, the company had reported a loss or near-zero profit in recent years, and that if it were to become subject to these taxes, this would increase membership fees, which are already higher than those of competing golf courses.
The Court thus finds that subjecting the association to corporate income tax and VAT would "significantly penalize[the association] economically." It is therefore entitled to challenge the tax ruling directly in court.
The Court therefore sets aside the Administrative Court’s judgment and also annuls the ruling for violating a procedural safeguard during the second review of the latter.
She also points out that, asadministration acknowledgedadministration the Court, "the association is managed on a non-profit basis, and the management of the subsidiary it plans to establish would not be such as to indicate the existence of preferential economic ties that could influence its own analysis with regard to business taxes."