SIIC: deferred deductibility of interest and distinction between full jurisdiction appeals and summary appeals.

The tax regime for listed real estate investment companies (REITs) presents complex specifics regarding the deductibility of financial interests. A recent decision from the Council of State provides important clarifications on the modalities of this deferred deductibility, as well as on the procedural nature of the possible appeals to contest a tax decision. We clearly explain here the stakes of this decision from the Council of State and its practical implications for the concerned real estate investment companies.

Deferred Interest Deductibility: What Clarifications Are Provided?

The mechanism of deferred deductibility allows for the postponement of the tax deduction of financial charges to a later fiscal year under certain conditions. This common practice in listed real estate groups has recently been the subject of valuable clarification from the Council of State.

According to a decision from the Council of State rendered on March 13, 2025 (CE, 9th-10th, n°474164, min c/ Sté Klépierre Alpes), it is essential to clearly distinguish two steps for assessing deferred deductibility:

• First, when interests whose deductibility has been deferred become finally tax-deductible, they may then be subject to partial reintegration into the taxable result, in accordance with Article 212 bis, I of the General Tax Code (CGI).
• Secondly, a crucial point emphasized by the Council of State is that the assessment of the threshold that triggers this reintegration, set out in Article 212 bis, II of the CGI, is made by considering these interests only in the fiscal year of their initial accounting, and not in the year when these financial charges actually become deductible.

This clarification is particularly important for REITs in the precise management of their annual taxation, as it directly influences the fiscal year on which potential calculations for interest reintegration will be based.

Distinction Between Full Jurisdiction Appeals and Excess of Power Appeals

The Council of State also clarifies an essential procedural point: the legal distinction between two types of appeals, namely full jurisdiction appeals and excess of power appeals (REP).

In the case at hand, the Administrative Court of Appeal had considered itself seized of a full jurisdiction appeal to judge the legality of the decision by which the tax administration had reintegrated certain amounts related to deferred interests into the exempt taxable result.

The Council of State censures this analysis. On the contrary, this type of appeal, whereby a company directly opposes an administrative decision of tax reintegration, falls under an excess of power appeal, according to the Council of State. In practical terms, this means that the administrative judge is not directly authorized to modify the administrative decision in such a case, but only to verify that the administration has not exceeded its powers or committed a manifest error in its assessment.

This distinction has significant consequences for REITs facing such tax disputes. In an REP, the authority of the judge is limited to annulling the contested administrative decision, without being able to prescribe a specific decision to the administration. Conversely, in full jurisdiction, the judge's power is broader as it can go as far as directly modifying a contested administrative decision.

Practical Implications for REITs: Anticipate and Seek Support

For listed real estate companies and their legal and tax advisors, this decision from the Council of State imposes greater vigilance:

• During the accounting and tax closing work, particular attention must be paid to the fiscal year in which the interests whose deductibility is deferred are accounted for, in order to correctly assess the obligations for tax reintegration.
• In the event of a dispute over tax reintegrations, companies must be particularly vigilant about the choice of appeal to prioritize, REP or full jurisdiction, as the consequences of this distinction are significant in terms of potential outcomes and legal maneuvering.

To secure and optimize these complex issues, it is strongly advised for REITs and their financial teams to systematically seek the expert support of a tax lawyer specialized in listed real estate. These professionals will effectively guide you at each key stage of your tax disputes, anticipating risks and rationalizing the most suitable strategies for your particular situation.

Are you concerned about these complex tax issues for your listed real estate investment company? Contact our tax law experts at PRAX Avocats now for tailored support.