Decision no. 2010-44 QPC of 29 September 2010

On July 12th 2010 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 transmitted by the Conseil d'Etat (decision n° 339081 of July 9th 2010), application made by Mr. and Mrs. Alain M pertaining to the conformity of Articles 885 A, 885 E and 885 U of the General Tax Code with the rights and freedoms guaranteed by the Constitution.

THE CONSTITUTIONAL COUNCIL

Having regard to the Constitution;

Having regard to Ordinance n° 58-1067 of November 7th 1958 as amended (Institutional Act on the Constitutional Council);

Having regard to the General Tax Code

Having regard to Act n° 81-1160 of December 30th 1981 being the Finance Act 1982, and decision n° 81-133 DC of the Constitutional Council of December 30th 1981;

Having regard to Act n° 88-1149 of December 23rd 1988 being the Finance Act 1989 in particular section 26 thereof;

Having regard to Act n° 98-1266 of December 30th 1998 being the Finance Act 1999 and decision n° 98-405 DC of the Constitutional Council of December 29th 1998;

Having regard to Act n° 99-944 of November 15th 1999 pertaining to Civil partnerships (PACS):

Having regard to the Regulation of February 4th 2010 as to 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 on behalf of the Applicants made by the SELARL Delsol Attorneys at the Lyon Bar, registered on August 10th 2010;

Having regard to the observations of the Prime Minister, registered on August 10th 2010;

Having regard to the further observations made in reply on behalf of the Applicants by Attorney SELARL Delsol, registered on August 25th 2010;

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

Mes Jean-Philippe Delsol and Frédéric Subra for the Applicants, Mr. Thierry-Xavier Girardot, representing the Prime Minister, were heard by the Council in open court on September 20th 2010;

Having heard the Rapporteur;

ON THE FOLLOWING GROUNDS

1. Article 885 A of the General Tax Code provides : "The following persons shall be liable to pay the annual wealth tax when the value of their property and personal assets exceeds the amount of the first scale as specified in Article 885 U:
   " 1° Individuals having their tax domicile in France, on their property and personal assets situated in France and outside France.
   " However the individuals referred to in the foregoing paragraph who have not had their tax domicile in France for the five years prior to the year during which they establish their tax domicile in France shall be taxable solely on their property and personal assets situated in France
   " The foregoing provision shall apply each year during which the taxpayer shall retain his tax domicile in France until December 31st of the fifth year following that during which said taxpayer transferred his tax domicile to France.
   " 2° Individuals not having their tax domicile in France shall be taxable on their property situated in France
   " Except as provided for in a and b of 4 of Article 6, married couples shall be taxed as one single household.
   " Conditions of assessment shall be determined as of January 1st each year.
   " Persons having entered into a Civil partnership (PACS) as defined by Article 515-1 of the Civil Code shall be taxed as one single household
   ." Business assets as defined in Articles 885 N, 885 O, 885 O bis, 885 O ter, 885 O quater, 885 O quinquies, 885 P and 885 R shall not be taken in account when assessing taxable assets ".

2. Article 885 E of the same Code provides :
   " The tax base for computation of the wealth tax shall comprise, as of January 1st each year, all taxable property, assets, rights and valuable benefits belonging to the taxable persons referred to in Article 885 A, and to their minor children when they have the legal administration of the assets thereof.
   " In cases of cohabiting couples, the tax base shall comprise the net value of all taxable property, assets, rights and valuable benefits belonging to one or other of the cohabiting couple and to those minor children referred to in paragraph 1 hereinabove ".

3. Article 885 U of the same Code fixes in a tax scale the rates of the wealth tax on the basis of the fraction of the taxable net value of property thus owned and specifies the manner whereby said scale shall be updated.

4. The Applicants argue that the provisions of Articles 885 A and 885 E fail to comply with the principle of equality before tax law and equality before public burden sharing guaranteed by Articles 6 and 13 of the Declaration of the Rights of Man and the Citizen of 1789. They also contend that Article 885 U infringes the principle of equality before taxation.

5. Firstly, Article 6 of the Declaration of the Rights of Man and the Citizen of 1789 proclaims: " The Law shall be the same for all, whether it protects or punishes ". The principle of equality does not preclude Parliament from treating different situations in different ways, nor from departing from the principle of equality for reasons of general interest provided that, in each case, the resulting difference in treatment is directly connected with the purpose sought to be achieved by the statute which introduces such different treatment. For the application of this principle the situation of taxpayers is assessed on the basis of each form of taxation considered separately.

6. Article 13 of the Declaration of 1789 proclaims : " A common contribution is indispensable for the maintenance of the public force: it should be equally distributed between all citizens, in proportion to their ability to pay ". Under Article 34 of the Constitution, it is the task of Parliament to determine, in due compliance with constitutional principles and taking into account the specificities of each tax, the rules applicable to the assessment of such ability to pay. In particular, to ensure compliance with the principle of equality, this should be done on the basis of objective and rational criteria depending on the purpose sought to be achieved. Such assessment must not however entail any patent infringement of the principle of equality before public burden sharing.

• WITH RESPECT TO ARTICLES 885 A AND 885 B OF THE GENERAL TAX CODE:

7. The Applicants argue that when introducing different treatment between married taxpayers and cohabiting couples on the one hand and persons not living as cohabiting couples of the other hand, Article 885A and 885E fail to comply with the principle of equality before taxation. When including in the tax base for computation of the wealth tax non income-producing assets, these provisions also fail to comply with the principle of equality before public-burden sharing guaranteed by Article 13 of the Declaration of 1789.

• As regards the determination of persons liable to pay the wealth tax:

8. Under the combined provisions of paragraph 3 of Section 23-2 and paragraph 3 of section 23-5 of the Ordinance of November 7th 1958 referred to above, the Constitutional Council cannot be asked to rule on an application for a priority preliminary ruling on the issue of constitutionality concerning a provision which has already been found to be constitutional in the grounds and holding of a decision of the Council, unless there has been a change of circumstances.

9. The placing in the same category, for the purposes of the wealth tax, of persons living as cohabiting couples and married couples derives from paragraph 2 of Article 885E. The wording of the latter is identical to that of paragraph 2 of section 3 of the Finance Act of 1982. In paragraphs 4 and following of its decision of December 30th 1981 referred to above, the Constitutional Council reviewed said section in particular. Article 2 of the holding of this decision found section 3 to be constitutional. If the Act of November 15th 1999 has amended Article 885 A of the same Code to include partners in a Civil partnership (PACS) in those categories of persons subject to joint taxation for purposes of the wealth tax, as is the case with married couples and cohabiting couples, this amendment does not involve a change of circumstances within the meaning of Article 23-5 of the Ordinance of November 7th 1958 referred to above. Thus, in the absence of any change of circumstances since the handing down of said decision by the Council regarding the subjecting to the wealth tax of cohabiting couples it is not incumbent upon the Constitutional Council to proceed to carry out a further review of paragraph 2 of Article 885 E.

• As regards the tax base for computing the wealth tax

10. The tax base for computing the wealth tax, as determined in paragraph 1 of Article 885 E, comprises all property and assets, rights and valuable benefits belonging to the taxable household, whether or not the same generate income. This tax comes under the scope of "all types of taxes", referred to in Article 34 of the Constitution, which vests Parliament with the task of determining the rules governing the base, rate and manner of collection of such taxes, subject to compliance with principles and rules of constitutional status.

11. The wealth tax is not a tax on income. When introducing a wealth tax Parliament intended to harness the ability to pay taxes arising from the possession of property, assets and rights. The taking into account of such ability to pay taxes does not imply that solely assets generating income are part of the tax base for computing the wealth tax. The argument based on the infringement of Article 13 of the Declaration by this tax base is therefore to be dismissed.

• WITH RESPECT TO ARTICLE 885 U OF THE GENERAL TAX CODE

12. The Applicants contend that, contrary to the method used for computing income tax, where a family share system applies, the provisions of Article 885 U do not take into account in the same conditions the ability of taxpayers to pay income tax and the wealth tax. They therefore fail to comply with the principle of equality before taxation.

13. The wealth tax is a tax applied on a progressive tax rate schedule. Furthermore Parliament has provided various deductions, exemptions or reductions concerning, in particular, the place of main residence.

14. When creating the wealth tax Parliament considered that the composition of the household did not have the same relevance where computation of the wealth tax is concerned as it does regarding the computation of income tax. It retained the principle of one taxation per household without taking into account any family share system. When taking into account by other methods the ability of the taxpayer to pay it has not failed to comply with the requirements of Article 13 of the Declaration of 1789, which does not make any reference to a family share system. The argument based on the lack of any family share system used to compute the wealth tax must therefore be dismissed.

15. The challenged provisions do not run counter to any other constitutionally guaranteed right or freedom.

HELD

Article 1: Articles 885 A, 885 E and 885 U of the General Tax Code are in conformity with the Constitution.

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

Deliberated by the Constitutional Council sitting on September 28th 2010 and composed of Messrs Jean-Louis DEBRE, President, Messrs Jacques BARROT, Mrs Claire BAZY MALAURIE, Messrs Guy CANIVET, Renaud DENOIX de SAINT MARC, Mrs Jacqueline de GUILLENCHMIDT, Messrs Hubert HAENEL, and Mr Pierre STEINMETZ.

Announced on September 29th 2010.