Taxation of non-residents: towards a jurisprudential break regarding the transfer of real estate assets in France?

On May 7, 2025, the Administrative Court of Montreuil issued a ruling that challenges the foundations of the taxation of non-residents on capital gains from real estate in France. Relying on a literal interpretation of the Franco-Dutch tax treaty, this decision undermines the economic reasoning previously adopted by French courts.

This isolated turnaround raises concerns about the legal security of foreign investors and could pave the way for new litigation.

An Iconic Cross-Border Operation

The case involves the Dutch company Villiot HoldCo B.V., which sold shares in a French collective investment scheme (OPPCI), the latter holding real estate in France through two real estate investment companies (SCI).

The French tax administration considered that the shares sold indirectly represented real estate assets located in France. On this basis, it applied the withholding tax provided for in Article 244 bis A of the General Tax Code, targeting capital gains realized by non-residents.

The Administrative Court of Montreuil Breaks with Dominant Jurisprudence

In its ruling of May 7, 2025 (TA Montreuil, n°2301787), the court annulled the taxation. It based its decision on a restrictive interpretation of the Franco-Dutch tax treaty, asserting that the treaty does not allow for the taxation of capital gains when the concerned assets are held indirectly.

A Literal Interpretation of the Treaty

Article 13 §1 of the treaty states that only capital gains realized on directly held real estate are taxable in the state where the assets are located. According to the court:

Holding through SCIs (intermediate structures) does not constitute direct holding;
The reservation contained in the Franco-Dutch protocol does not allow for an extension to these situations;
The clause referring to domestic law (Article 3 §2) should not take precedence over the strict interpretation of the treaty.

This position marks a break from the substantive jurisprudence favoring an economic approach.

A Divergence with the Council of State and the Court of Cassation

This interpretation by the TA Montreuil contradicts recent decisions from the Council of State and the Court of Cassation, which favor a “substantive” interpretation of tax concepts.

A Well-Established Jurisprudence

The Council of State, in a ruling dated February 24, 2020 (n°436392), confirmed that shares in real estate-dominant companies can be considered as real estate assets under a tax treaty.

The Administrative Court of Appeal of Paris reaffirmed this position on December 13, 2024 (n°23PA01694).

The Court of Cassation (April 2, 2025, n°23-14.568) also aligned with this logic by qualifying shares of SCIs held by Luxembourg residents as real estate assets under the Franco-Luxembourg treaty.

These courts rely on an economic understanding of transactions and refer to definitions provided by French tax law.

A Breach for Non-Residents... but for How Long?

The ruling of the TA Montreuil, although isolated and subject to appeal, offers a strategic opportunity for non-resident taxpayers:

It can be cited as a precedent in disputes involving an old or deficient tax treaty (such as the one signed with the Netherlands);

It highlights the importance of the legal qualification of investment structures, particularly in cases of indirect holding through SCIs or holdings.

This legal imbroglio could, however, be quickly resolved if the appellate court or the Council of State reaffirms their previous jurisprudence.

Adapting Wealth Strategy in the Face of Uncertainty

In light of a changing tax landscape for non-residents, foreign investors must be proactive and vigilant. Key points of caution include:

Analyzing the applicable tax treaty rigorously, particularly the definitions of “real estate” and referral clauses;

Evaluating the holding structure (direct vs. indirect), especially through SCIs or OPPCIs;

Anticipating a potential reversal of jurisprudence that could lead to tax reassessments.

In any case, it is crucial to legally and fiscally secure operations before any transfer of French real estate assets.

Conclusion: Towards an Evolution of International Tax Litigation?

The decision of the TA Montreuil reignites an old but crucial debate: should one rely on the legal form of investments or their economic reality? While higher courts tend to favor the latter approach, the decision rendered in May 2025 shows that international tax instruments remain subject to interpretation and sometimes to reversals.

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PRAX Avocats assists non-residents in structuring and optimizing their real estate investments in France.

For any questions regarding capital gains taxation, tax treaties, or transfer operations, please feel free to contact us.