When States are so Desperate that they make Intelligence Illegal

When Following the Law Becomes a Crime

Note : This article is the 7th in a series on over-legislating a a path that more and more nation-states are taking in an attempt to emasculate the disruptions that threaten them.
Here is the first 6 articles in the series :

1. Death by regulation

2. When Regulations are So Stupid...

3. Is the EU killing itself with regulations?

4. GDPR : its real cost to the EU - Data Protection or Economic Destruction?

5. Will Nation-States Game The System with Cartels ?

6. A Nation of Law-Breakers: The Unseen Strategy of Inflated Legislation

"And my lawyer confirmed that France is a country which, without batting an eyelid, considers that having the right to do something does not give the right to abuse it! I leave you to imagine the marvellous philosophical debates that arise from this tax provision, which is the delight of a few enthusiasts for whom simple compliance with the law is already "fraud". He assures me that I can contest, that I'll certainly win, but that, in the meantime, I'll have to block in the bank the amount of the penalty claimed. As I don't have a penny to my name, that's not going to be possible."

Marc Simoncini, creator of Meetic. Une Vie Choisie

As Marc Simoncini points out, the law gives every citizen the power to act within certain limits. However, France and several other countries, notably civil law countries¹ , maintain that having the right to do something does not necessarily give the right to abuse it.

Abuse of right

If, for example, your neighbor hates you so much that he builds a high wall on his property just to block your view, a priori he has the right to do so, but by doing so with the sole aim of harming you, he is committing an abuse of right.

The right to abuse

Abuse of right in tax law

Where things get complicated is when this notion is extended to tax law.

In tax law, abuse of rights is generally linked to the use of legal mechanisms designed to reduce or eliminate tax liabilities in a way that runs counter to the original intention of the law.

Abuse can be linked to the exploitation of loopholes in the law or the use of aggressive tax strategies designed to reduce the tax burden, even if these actions are technically legal.

Normally, the tax authorities are supposed to invoke abuse of rights to challenge insubstantial arrangements, for example:

• An entrepreneur with a company A based in France, who sets up a B company in a tax haven, with no employees

• Company B invoices company A in France for various services in order to reduce the taxes that company A has to pay in France.

It's all very well to set up a company abroad, but as company B is in fact an empty shell, created solely to reduce the amount of tax payable by company A, it's an abuse of the law.

A similar scenario that would not involve abuse of rights would be, for example :

• That the entrepreneur actually moves to this country to manage his company B from there, while closing his French company A

• Or hire a team and a manager in Company B's country, who will create part of the added value there.

From abuse of right… to the abuse of the abuse of right

So far, so good. But what Marc Simoncini was referring to in the above quote is that the tax authorities sometimes don't hesitate to use this weapon even when they shouldn't, counting on the fact that many taxpayers won't venture to contest the decision.

In addition, some officials consider that mere compliance with the law can be perceived as a form of "fraud", especially if it is used to achieve results that defy the spirit of the law² .

In France, until 2019, an abuse of tax law could only be characterized if the taxpayers' tax strategies had been implemented with the exclusive aim of reducing tax.

Since 2019, a new version has been in place, making it possible to prosecute taxpayers who have implemented strategies whose main motive is to reduce tax.

Do you see the nuance?

The trend towards fiscal intransigence

Because when we look at the evolution of legislation and case law, we see a trend converging towards :

• Tougher laws against tax fraud, extending their scope and increasing penalties

• Increased transparency and exchange of information

• A desire to eliminate situations where no tax is paid, or where too little tax is paid

  • For example, until 2015, it was possible in France to use tax treaties between two countries to avoid being taxed (if the treaty between France and country B states that such income must be taxed in country B, but that, by applying the domestic law of country B, this income is not taxed).

  • However, in 2015, the Conseil d'Etat handed down two rulings in quick succession³ essentially stating that the fact of not being taxed in a country renders the application of a tax treaty impossible, as the treaty was concluded to avoid double taxation, not to allow non-taxation

  • At the time, this was considered a bold interpretation, and one that ran counter to decades of case law.⁴

Even if the desire to put an end to situations of complete non-taxation is understandable, going against what has been case law for decades shows the extent to which 1) States are increasingly desperate to make money back into their coffers 2) to the point of changing their established way of looking at the law.

This, coupled with the fact that states need the Eye of the State to become the Eye of Sauron - ever more powerful and capable of knowing everything about the lives of its residents, in order to control an increasingly mobile population - creates a strong indirect censorship that runs counter to freedom of expression : many entrepreneurs refrain from criticizing the tax authorities and tax policies, for fear that some obscure article of law in an increasingly heavy and powerful tax arsenal will be applied to them "at random".

However, as we have already seen, over-efficient tax services could encourage an increasingly mobile population to leave the country to take advantage of the fast-growing market of jurisdictions fighting to offer the best value for money.

Coming soon

In the next article, we’ll take a look at when governments cheat and don't respect their own rules, with the sad example of France.

Stay tuned ! In the meantime, feel free to follow Disruptive Horizons on Twitter, and join the tribe of Intelligent Rebels by subscribing to the newsletter : 

And here are the first 6 articles of this series :

Death by Regulation

When Regulations are So Stupid...

Is the EU killing itself with regulations?

GDPR : its real cost to the EU - Data Protection or Economic Destruction?

Will Nation-States Game The System with Cartels ?

A Nation of Law-Breakers: The Unseen Strategy of Inflated Legislation

1. In Common Law countries, abuse of rights does not exist as such, but there are other anti-abuse mechanisms.

2. For one of many examples, see "Case n° 2017-36 concerning SAS X France" in the report "Séance du 9 mars 2018 : avis rendus par le comité de l'abus de droit fiscal commentés par l'administration (CADF/AC n° 2/2018)." by the Direction générale des finances publiques.

3. "Conseil d'État, 9ème / 10ème SSR, 09/11/2015, 370054" and "Conseil d'État, 9ème / 10ème SSR, 09/11/2015, 371132".

4. Patrick Michaud and Benjamin Briguaud, "La double exonération fiscale internationale : c'est fini !!???", Études Fiscales Internationales, 2016