French tax litigation on real estate : rectification of selling price by the taxman is admissible in court

In real estate, “bargains” are not uncommon. Professional transfer, divorce, family drama … busy sellers are often forced to sell off their property. For the benefit of the purchaser who seized the opportunity.

Problem: the “good deal” awakens sometimes the interest of the taxman who can initiate a procedure of rectification of price or recovery for insufficiency of evaluation of price.
In principle, it is up to the parties to the contract to fix the price or valuation of the goods that are transferred.

However, in practice if the taxman considers that this amount appears to be lower than the real market value of the goods transmitted or designated in the acts or declarations, the tax authorities may rectify this price or valuation which serves as a basis for the collection of VAT or duties, registration and land tax.
This issue became a subject of court practice before the Constitutional Counsel, where the applicant declared that such taxman’s practice remains in contradiction with articles 666 and 683 of the French General Tax Code which provide that the duties and taxes are liquidated on the price expressed by the parties and would infringe the right of ownership, the principle of contractual freedom and the principle of equality enshrined in the Declaration of the Rights of Man and of the Citizen.
The relevant judgement was recently adopted, and according to the judges, the mechanism for rectification of the price mentioned by the parties, which the tax authorities may use to rectify the basis of the transfer duties, is not contrary to the provisions of freedom of contract and meets a goal of combating tax fraud.


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