Co-authored by Guillaume Madelpuech, NERA Economic Consulting
Services or Intangible Property
If a senior manager or management team is relocated into or out of your jurisdiction, does your country have a view about whether the transfer is purely a services transfer, or includes an intangible asset such as goodwill (or even workforce in place); or of an intangible such as profit potential?
As a matter of principle, the French tax legislation does not qualify "human capital" as constituting an 'asset.' Therefore, in the current state of the French law, "workforce - in place"would be viewed as a component of a company's function. Consequently, since such tax law is aiming at taxing asset transfers, no compensation would be required on a transfer of a work force, to the extent the transfer is not reflective of or associated to any other asset transfer, in particular of an intangible.
If the aforementioned transfer is purely made of a transfer of personnel (managers, directors or employees), without any other single tangible or intangible asset, it is unlikely to be seen as a taxable transfer of a profitable business, if externalized out of a French company. Even if there is no formal guidance on the characterization of a taxable "business restructuring"under French tax law, such a taxable event is generally evidenced by the transfer of several assets in addition to the transfer of personnel, in a single or in successive times. Such assets would notably include a clientele or going-concern, as the case may be, i.e. a bundle of client contract relationships enabling to transfer the corresponding underlying profit potential. In this case, and in line with the OECD developments on 'transaction delineation", it is likely that the French Tax Administration would seek to establish that the transfer of personnel takes place within a wider context and, as such, is part of a taxable event.
In business restructuring situations, it is expected as well that the French Tax Administration would pay due attention to the compliance with contractual and commercial law. If the previous contractual relation-ship between the parties has not been duly cancelled and, possibly, indemnified (e.g. in case of an early termination), it is likely that the French Tax Administration would seek to establish a tax reassessment on these grounds.
It is only in exceptional, and possibly abusive, situations, that a "pure"transfer of personnel would be seen as taxable in the hands of the transferee, notably if the latter is not indemnified while the activity...