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Decision no. 2013-340 QPC of 20 SEPTEMBER 2013

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Mr Alain G.[Taxation of redundancy or retirement compensations]

On 24 June 2013 the Constitutional Council, in the conditions provided for by Article 61-1 of the Constitution, received an application for a priority preliminary ruling on the issue of constitutionality raised by the Conseil d'État (decision no. 365253 of 24 June 2013) on behalf of Mr Alain G., raising the conformity of paragraph 1 of Article 80 of the General Tax Code, as in force following the enactment of the Law of 30 December 2000 on finances, amended for 2000, with the rights and freedoms guaranteed by the Constitution.

THE CONSTITUTIONAL COUNCIL,

Having regard to the Constitution;

Having regard to Ordinance no. 58-1067 of 7 November 1958 as amended, concerning the basic law on the Constitutional Council;

Having regard to the General Tax Code;

Having regard to the Labour Code;

Having regard to Law no. 99-1172 of 30 December 1999 on finances, amended for 2000, along with Decision no. 99-424 DC of 29 December 1999 of the Constitutional Council;

Having regard to Law no. 2000-1353 of 30 December 2000 on finances, amended for 2000;

Having regard to the Regulation of 4 February 2010 on the procedure applicable before the Constitutional Council with respect to applications for priority preliminary rulings on the issue of constitutionality;

Having regard to the observations made on behalf of the applicant by SCP Nicolaÿ-de Lanouvelle-Hannotin, Attorney at the Conseil d'État and the Cour de Cassation, registered on 16 July 2013;

Having regard to the observations of the Prime Minister, registered on 16 July 2013;

Having regard to the documents produced and appended to the case file;

Having heard Mr Xavier Pottier, appointed by the Prime Minister, at the public hearing on 12 September 2013;

Having heard the Rapporteur;

1. Considering that paragraph 1 of Article 80-duodecies of the General Tax Code, as in force following the enactment of the Law of 30 December 2000 on finances, amended for 2000, provides that: "Subject to the exemption provided for under subparagraph 22 of Article 81, any compensation paid upon termination of a contract of employment, with the exception of redundancy compensations or voluntary severance payments disbursed under the terms of a redundancy plan pursuant to Articles L. 321-4 and L. 321-4-1 of the Labour Code, the compensations referred to under Article L. 122-14-4 of the Code and the portion of the redundancy or retirement compensations up to the threshold provided for under the sectoral collective agreement, an occupational or inter-occupational agreement or, in the absence of the foregoing, under law, constitutes taxable income. ";

"The portion of the redundancy or retirement compensation that is exempted under the terms of subparagraph one may not be lower than 50% of the amount thereof, or than two times the gross annual salary received by the employee during the calendar year before his contract of employment was terminated, up to the limit of one half or, for retirement compensations, one quarter of the first rate bracket of the solidarity tax on wealth laid down by Article 885 U";

2. Considering that, according to the applicant, in reserving the benefit of partial or full exemptions from income tax to payments disbursed by the employer in relation to dismissal and the redundancy compensations referred to under Article L. 122-14-4 of the Labour Code where awarded by the courts, and thereby excluding from the scope of these exemptions compensations paid under the terms of a settlement concluded following the "acknowledgement" by the employee of his dismissal, the contested provisions, as interpreted by the Conseil d'État, violate the principle of equality in the payment of public dues;

3. Considering that Article 13 of the Declaration of the Rights of Man and the Citizen of 1789 provides that: "A common contribution is essential for the maintenance of public forces and for the cost of administration. This should be equitably distributed amongst all citizens in proportion to their means”; that, pursuant to Article 34 of the Constitution, it is for the legislator to determine, in accordance with constitutional principles and taking account of the characteristics of each tax, the rules according to which the capacity to pay tax must be assessed; that in particular, in order to ensure that the principle of equality is respected, it must base its assessment on objective and rational criteria intended to further the goals it proposes; that this assessment may not however entail any clear breach of the principle of equality in the payment of public dues;

4. Considering that in adopting the contested provisions, the legislator laid down the principle according to which any compensation paid upon termination of a contract of employment is taxable income, whilst specifying exceptions from this rule; that it thereby exempted from income tax a portion of redundancy compensations or voluntary severance payments and all redundancy compensations or voluntary severance payments where disbursed under the terms of a redundancy plan pursuant to Articles L. 321-4 and L. 321-4-1 of the Labour Code, in addition to the compensations referred to under Article L. 122-14-4 of the Code; that these compensations are in effect compensation due where the dismissal procedure has not been complied with, compensation for dismissal without objective and serious grounds and compensation awarded in the event that the procedure laid down under Article L. 321-1 of the Labour Code in relation to collective dismissal on economic grounds is not respected;

5. Considering that according to the settled case law of the Conseil d'État referred to in decision of 24 June 2013 to refer this application for a priority preliminary ruling on the issue of constitutionality, Article 80-duodecies lays down a closed list of exemptions from the general principle of liability to taxation specified thereunder and that the tax exemptions provided for under the contested provisions do not apply to "compensations received by an employee under the terms of a settlement concluded with his employer following 'acknowledgement' of the termination of his contract of employment, which cannot under any circumstances benefit from an exemption from income tax, irrespective of the nature of the detriment that they seek to rectify";

6. Considering that the contested provisions define the redundancy compensations or voluntary severance payments which, by virtue of their status, are subject to a full or partial exemption from income tax; that these provisions cannot result in a situation in which the benefit of these exemptions varies depending upon whether the compensation was disbursed under the terms of a court order, an arbitral award or a settlement without creating a difference in treatment that bears no relevance to the object of the law; that in particular, in the event that a settlement is reached, it will be for the administrative authorities and, if seized, the tax courts to decide how to classify the amounts covered by the settlement;

7. Considering that, with regard to the remainder, as the Constitutional Council held in recitals 17 to 22 of its aforementioned decision of 29 December 1999, the exemption criteria laid down by Article 80-duodecies do not establish any unjustified difference in treatment and do not jeopardise the principle of equality in the payment of public dues; that in amending Article 80-duodecies, Article 1 of the aforementioned Law of 30 December 2000 provided that its application to employee retirement compensations would be subject to a legal limit, unless a contractual limit had been agreed upon; that however, such an amendment is not of such a nature as to alter the assessment of their constitutionality;

8. Considering that the contested provisions do not violate any other right or freedom guaranteed by the Constitution; that subject to the reservation stated in recital 6, they must be ruled constitutional,

HELD :

Article 1 .– Subject to the reservation stated in recital 6, paragraph 1 of Article 80-duodecies of the General Tax Code, as in force following the enactment of the Law of 30 December 2000 on finances, amended for 2000, is constitutional.

Article 2. – This decision shall be published in the Journal Officiel of the French Republic and notified in the conditions provided for under Article 23-11 of the Ordinance of 7 November 1958 referred to hereinabove.

Article 3 – Deliberated by the Constitutional Council in its session of 19 September 2013, sat on by: Mr Jean-Louis DEBRÉ, President, Ms Claire BAZY MALAURIE, Ms Nicole BELLOUBET, Mr Guy CANIVET, Mr Michel CHARASSE, Mr Renaud DENOIX de SAINT MARC, Mr Hubert HAENEL and Ms Nicole MAESTRACCI.

Announced on 20 September 2013.