Debate under the direction of Emmanuel CONSTANS, Mediator of the economic and financial ministries
Béatrice MAJDA, Associate Lawyer, GB2A ( Caen ) cabinet, Lecturer in public law at the faculty of law of CAEN – University of Basse-Normandie.
Michel TALY, Associate Lawyer with the cabinet Arsène TAXAND ( Paris ), former Director of the of the fiscal legislation Department with the Ministry of Finance
Serge ARNAL, Delegate of the mediator of the economic and financial ministries
Emmanuel Constans: “This afternoon is dedicated to a reflection on the theme” Mediation and Equity. We are very pleased to receive two distinguished guests who are going to participate in this debate.
On the one hand, Beatrice MAJZA, who created and co-directed a well-known law firm based in Caen and several cities in France. Sheis also a Lecturer at the University of Caen. Our attention was called by a publication of Béatrice MAJZA on the theme of equity. You find it in the folder that was given to you.
We are also pleased to welcome Mr. Michel TALY, Lawyer associated with the Cabinet Arsene TAXAND, Michel TALY, who I have the pleasure to know personally for a long time.
He leads a quite exceptional career. He was Director of Tax Legislation. He has also held major responsibilities in the banking sector and in the field of chartered accounting. Today, Michel TALY is a lawyer, a specialist of the fiscal questions.
It seems to me very interesting for our discussion to have successively overview of the equity principle with the presentation of Béatrice MAJZA, then concrete experience of the implementation of this principle in the field of taxation and mediation with the presentation of Michel TALY.
Previously, Serge ARNAL is going to make, in the introduction, a brief opresentation of the concept of equity thanks to the works he has done on the subject.
Serge ARNAL: ” the theme of this reflection which is entitled ” Mediation and Equity ” arose from the sentence often used in mediation: ” the Mediator rules in law and in equity “. In law, it raises no particular problem. But, it seems necessary to clarify the notion of equity.
Our distinguished speakers will bring us answers to the following question: “What is the meaning of equity reported in the field of mediation? “. Equity is a vast and complex subject.
To approach this subject, I made an embryonic research at the international, national level, in legal matters as well as through citations. I thus found mister TALY’s writings which evoke the horizontal, vertical and intrinsic equity
I also wished to connect this question of equity with the fiscal system. This morning, we talked about ex-gratia recourse, regarding the fiscal question. You often use often, for this purpose, article L. 247 of the Book of Fiscal Procedures.
Regarding our tax system, this article is very important but taxpayers often don’t know that they can benefit from a tax remission (ie a total remission) or one moderation (ie a reduction) of their taxes, in difficult circumstances (economic and social reasons). This possibility also concerns the penalties, the transactions, the pursuit expenses, late-payment interests. With regard to this article L. 247, I wanted to pursue my historical research by paying a special attention on the notion of embarassment and indigence mentioned in this article.
I tried to identify the origin of these notions which arise from a decree of 1938. In fact, the ex-gratia recouorses existed before 1938, including in the fiscal field . If we study strictly this decree, we realize that we can deviate, even regarding the ex-gratia recourse from what is expected by the legislator when he speaks abourt embarrasment and indigence.
However, you should not necessarily be in a situation of embarassment or indigence to obtain a gracious remission of a penalty. Exceptional circumstances may lead to the granting of this remission.
Thus, for example, the tax law requires to establish a statement on a specific date. If by that date, the taxpayer receives a raise at a time when he was hospitalized – this is an extreme case – he is, of course, in the incapicity to respond to this raise. A fine of 40% is applied to him because the taxpayer did not respect his fiscal obligations. With regard to Article L. 247, it seems conceivable to grant a remission of the penalty in the name of equity. There are many such cases.
I found definitions which go back up at the time of the philosophers of the Antiquity. So, Aristote said: ” the equity is the justice moderated by love “. For its part, Cicéron, asserted, by speaking about the equity, that ” it is a natural, and at the same time true, right and just law “. We note this reminde to the notion of justice.
Closer to us, Portalis – who was one of writers of the civil Code- resumes at the same time Aristote and Cicéron by writing that ” The equity is the return in the natural law in the silence, the opposition, the darkness of the positive laws “.
The Larousse dictionary specifies that the origin of the word equity comes from équitas in Latin. But it raisesan additional interrogation because équitas is translated by equal, equality.
Regarding the law, can we assert that equity – it is the question which we will ask to our participants peakers – is equivalent to equality?
The law dictionary informs us that, in certain cases, the judge may determine ” ex æquo and bono “. What is fair is good, in particular regarding civil law. The judge can thus intervene in equity.
We mentioned earlier that the Defender of Rights is a constitutional authority. His way of acting and the method of referral are the matter of an organic law .
We find the term of equity in this organic law. Indeed, it is indicated that the Rights Defender may recommend to settle a dispute in equity, especially in the context of mediation. The organic law is automatically subject to review by the Constitutional Council and this one has not declared contrary to the Constitution the fact that the Defender of Rights can rely on equity to formulate a recommendation . The legislation reference to equity is not peculiar to the Defender of Rights : it was used by the Ombudsman, created in 1973. The concept of equity was introduced in 1976 in the law with regard to the Ombudsman. This is Paul Legatte, fourth Ombudsman, who first, defined the principle of equity. According to him, the implementation of the principle of equity is based on three conditions:
• The equity can not be contrary to the spirit of the law;
• The principle of equity can not go against what the legislator wished;
• When treating a measure in equity, it should not create unequity for someone who would be in a comparable situation.
At the international level, it is advisable to take into account provisions of the article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms which promulgates the principle of the respect for a fair trial.
I list them here some terminological references regarding equity.
The Constitutional Council frequently uses the term political and electoral equity in perticular concerning candidates who did not obtain the statutory right to speek speech. Applications may be invalidated for non-compliance of political equity.
Currently, a law on the reorganization of the school of the Republic is under discussion in Parliament. This law emphasizes the school equity, which is defined with respect to two determinants : on the one hand, social origin and, and on the other hand, the place of residence of pupils. The school results of pupils should not be affected by a discrimination based on social origin and / or the place of residence.
The social and fiscal equity. In its annual activity report, the Direction Public Finance states that the fight against tax evasion is essential to strengthen tax compliance in a purpose of social equit. In my view, social equity should be understood in the sense of societal equity
Regarding fiscal equity, in the same activity report, it is indicated that: ” the fiscal equity represents a strong stake, in the current context of recovery of public finances. Our fellow countrymen are attached to public services and wish everybody to participate according to its capacities “.
To avoid any confusion between, on one hand, the principle of fiscal equity and, on the other hand, the principles of equality in front of tax payment and equality in front of the public responsibilities, it seems to me important to remind the origin and the nature of these last two principles.
The principle of equality in front of the law arises from the Article 6 of the Declaration of the Rights of Man and of the Citizen of 1789, which plans that the law must be the same for all. By extension to tax matters, the equality in front of the law becomes equality in front of the tax.
The principle of equality in front of the public responsibilities is different from that of equality in front of the tax. It can sometimes be confusion between both. The principle of equality in front of the public responsibilities arises derived from the article 13 of the Declaration of the Rights of Man and of the Citizen of 1789, means that the citizen contributes to the public spending according to their income. This means where proportionality of the tax.
Following this research, if the equity seemed more recognizable, it remains not less complex and source of questioning, and this is the reason for these ten questions:
Is the equity comparable to the equality in front of the law and the equality in front of the public responsibilities?
Is the equity an answer to an individual, collective or societal situation?
Is the equity a source of the law, can it be included in the law?
Vertical and horizontal fiscal equity ?
Is the moderate application of the fiscal law a matter of the equity?
The administrative appeal generally falls there in the field of equity?
Does the claim for equitable relief regarding taxes planned in the article L. 247 of the Book of the fiscal procedures recover the domain of the equity?
Are there any questions that can not be examined in equity (including reading the last paragraph of Article L. 247, which indicates that a public authority may not grant full or partial remission of registration fees, of excise and VAT)?
A ministerial decision may it be taken into equity? While Article 34 of the Constitution states that the law establishes the base, rates and methods of collection of taxes of any kind, it may happen that the Government take decisions in these field. For example, following a catastrophic natural event, the Minister of Finance may be led to extend the dates for filing tax returns and paying taxes.
Can the case of absolute necessity be examined under the angle of equity?
I will conclude by Article L. 247 of the Book of tax procedures, which according to the law, determines the frame for tax remission. In front of each paragraph, you will find the legal basis. For information, the regulatory provisions of Article L-247 of the Book of tax procedures are planned in Articles 247-1 to R * R * 251 A-5 of the book.
The Book of Tax Procedures was created in 1981 by the integration and disjunction of the articles of General Tax Code relating to the control, litigation and tax collection.
Article L. 247 arises from the article 1930 of the General Tax Code where appear the notions of embarrassment and indigence codified in the Decree of 1938. The first general code of taxes came into effect in 1950 “.
Thanking Serge ARNAL for his intervention, Emmanuel CONSTANS hands over to Béatrice MAJZA.
Beatrice MAJZA ” Mr. Ombudsman , ladies and gentlemen . My name is Beatrice MAJZA , lawyer specializing in public law and Master Lecturer at the Law Faculty of Caen. I am first and foremost specialist for public law and therefore, the tax rules are unknown to me . The fact remains that the notions of equity , mediation is part of our everyday life including public law. Thus , as a lawyer , I intervene essentially regarding contracts in the management of ports, airports, telecommunications or the the public service law . But we are increasingly called upon not to conduct real mediation missions, but to develop memoranda of understanding that allows us to find alternatives to contentious . Meanwhile, in my capacity as a lecturer, I was called to intervene with the Regional Commission on Compensation for Medical Accidents , which was established by the 2002 Kouchner Law, and is somehow , a mediation body as this commission avoids the recourse to contentious . We deliver decisions in equity. Thus, when a person has suffered an injury regarding his health in an hospital we play public solidarity
I thus notice that, whatever is the branch of intervention, the principle of equity is invited in our work I’ll go over some provisions already described by Mr. Arnal, and try to answer some questions that some are very sharp.
I would quote the Chancellor Seguier that in the sixteenth century, feared the consequences of the parliaments equity and spoke “God protects you from the equity of Parliaments.” Indeed, they had a propensy to exceed the limits and judge arbitrarily.
The first question is whether we should really fear the use of equity.
I return first of all towards Aristote who underlined the inevitable link between the right, the law and the equity. How to present equity? Should it be seen as a softening of the law?
From the twelfth century, the canonists, inspired by St. Thomas d’Aquin argued that equity should be synonymous with charity and mercy and should guide lawyers. How do you define equity? Mr. Arnal underlined it : equity is primarily a feeling. It is a sense of justice, a relatively spontaneous feeling of what should be the rule.
In contrast to the natural law, equity is not defined by real rights which we could claim for.
Two conceptions are in confrontation from an historic point of view.
The equity could be considered as a natural mode of resolution of disputes. Such was the case in the Antiquity, as well as in Vth century, XIIth and XIIIth centuries and as was the case in France : we considered that it was necessary to judge in equity. The equity was then considered as a softening of the rule and it allowed, from case to case, to adapt the rule of law.
Besides, there was a stream of thought which was hostile to the equity : it was necessary to be protected of the equity of Parliaments. Many texts, from which the prescription of Blois of 1579, translate this concern to see the judges going too far in equity, treating too often case by case and thus “overturning” into the arbitrary power of the decisions.
As we are justiciable, the rigity of the legal rule is a kind of guarantee to be treated in a equal way. It is moreover our French vision of 1789. The law is the expression of the general will and all the complainants are entitled to the same treatment. The law is the same for all, whether it protects or punishes.
However, other legal systems such as the Common Law that induced that it was necessary to soften straightaway the rule of law. Legal rigidity is not the solution. Thus, the Common Law, which is written from the eleventh century in Great-Britain, had its corrective with equtiy. From the fifteenth century, the Minister for Justice judged exclusively in equity. A system of law fully based on equity was implemented. Two visions thus co-exist : the rigidity of the law guaranteeing the protection and equity considered as its corrective.
To answer another question raised by Mister ARNAL, I shall underline that there are subjects which seem to lend themselves more to the equity than others, in particular public law and above all, as well as you underlined it, the international law. Some courts decide ” ex æquo and bono ” as the European Court of Justice and the European Court of Human Rights
The French administrative law is of rather praetorian construction. It is built on a case by case basis. From the XIXth century, the administrative law, according to some authors, such as Maurice Hauriou, is presented as a law in equity, a law based on the prerogatives of the administration but allowing nevertheless the softening of the rule and this on a case to case basis.
First, it any is from the perspective of the public law that I will approach the question of equity. It is under the influence of the administrative jurisprudence that in France, from the end of the XIXth century and after the Second World War, the equity developed in administrative law. The equity, from simple moral concept, abstract notion became a rulel leading to equal opportunities. From a moral rule, we restore a form of jsutice rule.
Indeed, you have pointed it out, the principle of equality is the basis of our law. Even the Constitution of 1958 prohibits discrimination. The principle of equality is an easy application rule and it is a rule of law which we find in any subject.
We were wary of the equity in XVth and XVIth centuries because the arbitrary power of the judge, the injustice of the Ancien Régime raised fears. The equity was put aside by public authorities.
What dominated first of all, it is the equality of all the citizens in the first half of the twentieth century until the Second World War. The State Council, with its construction of the rule of administrative law, declined the principle of equality in the Declaration of the Rights of Man and of the Citizen, equality in law, in tax matters, regarding Public expenses, equality in front of the public service.
The Constitutional Council also recognized the principle of equality regarding taxes, and in front of public responsabilities. But we realized, we are always in the twentieth century, that the principle of equality knew some limits. Certainly, we are all equal before public responsabilities. Nevertheless applying equality does not allow to consider each individual situation.
Economic, fiscal, social or cultural disparities persisted. It was therefore necessary to move from equality to the equity. It is the administrative judge, as the constitutional judge is much more regulated by the law, who developed this notion of equity. The administrative judge so considers that it is necessary to introduce the notion of justice, to move from the concept of equality of rights to the equality of opportunities.
The administrative judge thus began at the end of the XIXth century to introduce the concept of equity. We have a major principle in administrative law which is the one of the responsibility. For a long time, it is possible to engage the responsibility of the State without fault.
In addition to this notion of commitment of the State responsability without proving any fault, there is from now a notion of equity. This notion of commitment of the responsibility in front of the administrative judge allows to put forward the principle of equity. The administrative judge, even today, uses this notion of equity in particular when he interprets written standards, when he creates some jurisprudential rules. This is particularly true for the right for a fair trial which is a major general principle of the law which we find now in all the subjects. The administrative judge considers on a case by case basis and adapts the legal rule. He intervenes in equity.
Finally, we note that the administrative judge, between the end of the XIXth and the beginning of the XXth century, moved from a formal control, a pure and simple control of the respect for the legal rules to a control of the legitimacy. Are we entitled to impose such tax system to such person? Can the legal rule be qualified? Thus we have a judge, the State Council, which has the reputation to be rather audacious, to be a judge who created the rule of law, even before the law, and thus for the administrative judge, the principle of equity is invoked outside the legislative rules and the regulations.
The administrative judge works on case by case basis within the global frame of the law. Unlike the administrative judge, the constitutional judge does not consider completely the equity as a legal rule. It is for him a reference. There are some references to equity in the decisions of the Counstitutional Council.
At the level of the administrative judge we notice an evolution of the notion of equality towards a notion of equal opportunity. Without formulating clearly the principle of equity, the judge wishes the legal rule to be better adapted to each case.
In reality, the development of the jurisprudence of the administrative judge is linked to the development of the Welfare state. The State is commited to more and more social rights and in favour of more equality regarding taxes.
However, it is impossible to be satisfied with a judge who rules in equity in a more or less clear way. Then intervenes the notion of positive discrimination and this is a more legal notion, if I dare to say, and which is mentioned in the texts of law. But how conceiving the coexistence of the positive discrimination with the principle of equality which, in French law, represents the “highlight” of the rights? The principle of equality is an obstacle to the negative discrimination. So, all the persons in the same situation should be treated in equal way. But it seems clear – in contrario-that the persons being in a differentiated situation should be also treated in a different way. The notion of positive discrimination was thus introduced with the aim to set up more voluntarist politicies intended to reduce the disparities. The notion of positive discrimination is going to institutionalize, to give some contents to the notion of equity. The judge thus concretizes the equity with the notion of positive discrimination, institutionalizes it and, finally, gives it a legal basis. The only difficulty is that we cannot systematically practise positive discrimination. It must be controlled. This measure must be temporary, it must also be proportionned to the experienced discrimination and especially it must be justified by general interest reasons. Finally, the positive discrimination must ceased as soon as we restored the equality.
Indeed, the equity seems to be the solution to reduce the disparities. From the years 1980-1990, a large number of rules were adopted regarding equity:
• Priority Education Zones (ZEP)
• the Law regarding Solidarity and Urban Renewal (SRU) which requires municipalities to develop social housing
• The Active Solidarity Income (RSA)
The legislator reported a will of solidarity to reduce the disparities and restore the social justice.
We can quote other examples : regarding public service, there are reserved administrative competitions, the third way of the ENA (NATIONAL ADMINISTRATION SCHOOL) were organized as being an example of equity.
The positive discrimination applies specifically in optional public services: day-nurseries, music schools, canteens, which gave rise to many administrative jurisprudence. Thus, on the basis of geographical or fiscal considerations, it is admitted that pupils pay less canteen fees than others.
You are better placed than I to know that ta system is the privileged domain to introduce a fair application of the concept of equality. Nevertheless the principles of equity and equality of opportunity remain eminently political.
The implementation of equitable social rules could be risky and create new inequalities : a number of people being excluded, for geographical reasons, equity measures could lead to the creation of new inequalities.
Thus, equity, by wanting to solve problems in an equal way, even egalitarian is exposed to lead to identical claims, requests to be treated differently in certain geographical areas etc.. Besides, we have an administrative judge who is audacious and recognizes the need for equity, that it is necassry to treat on a case by case basis.
In practice, the reading of the jurisprudence, we realize that judges make proportionality controls to check if the equity measure allows to restore the equality.
The question is whether equity should be a rule in itself
Today, in administrative law, we consider that the equity is a secondary rule. It is the rule which allows to interpret the other laws, it is the rule which allows to correct the rough aspect of the rule of law. But we cannot judge completely in equity because the rule of law establishe is like a screen protecting from arbitrary power. With the social evolution, we say that the notion of equity echoed all that the previous law underestimated.
It dedicated new rights, and despite formulated criticisms, it allowed to erase inequalities. It led to more ethics, it has harmonized the law. We are very attached in French law to the principle of equality, equality remains a universal principle. The equity has to remain a corrective value of the rule of law.
The fact remains that thanks to the equity, we notice that, finally, the judge leaves more and more place toother methods of disputes resolution. Indeed, the mediation, but also the conciliation, the arbitration take more and more place. Today, we favor the recourse to the mediation which is less rough than an answer of the judge.
I thank you “.
Emmanuel CONSTANS : ” Thank you very much Béatrice MAJZA for this very clear and very sharp presentation cla of these complex notions of equity and equality. You highlighted the role of the administrative jurisdiction to push further the notion of equity. I recall that the creation of the Mediator of Ministries of the Economy and Finance results from a decree taken after a report of the Council of State, on initiative of the Government.
I now hand over to Michel TALY.
Michel TALY : “I take the same theme, but on the side of the practitioner, the practitioner who tried throughout his professional life to use this rule of equity and that, sometimes on the side of the administration, sometimes on the side of the taxpayer.
On the side of the administration, I note that it is paradoxically the fiscal legislation legislation service that frequently invokes the principle of equity … probably because having collaborated in the elaboration of the law, we do not ignore it may be generating inequities.
We allow ourselves to take the necessary backward to propose the Ministers the settlment of disputes on the basis of equity. I knew periods where this legislation service frequently intervened in individual cases, especially when he was independent and depended directly to the Ministers, which greatly irritated the General Tax Directorate, especially with regard to current fiscal audits.
I believe that it is necessary to begin by distinguishing two situations for which you are brought to intervene in the name of the equity.
In the first situation, it is about the equity considering the current situation of the taxpayer and its capacity to support the rectification of tax. When there are 3, 6, or 10 years of late-payment interests and penalties, that’s a lot. We are in the situation where the taxpayer does not deny that the tax is due, it should have been paid, but that a difficulty does not allow him to settle it.
It is equity, I would even say that it is about the proportionality of the punishment : it is necessary to find a subtle balance to avoid giving a bonus to the one who did not respect the law compared with the one who respected it and, at the same time, to consider the “lethal” aspect of the rectification.
This first access to the definition of equity has an historic origin evoked previously, in particular with the notion of poverty.
An example: the index tax does not measure very well the ability to pay tax. Year after year, the Board of direct taxes was led to notice that a citizen was requested to pay for a tax upper to his ability to pay. Besides, there is a cumulative aspect of the tax audit which makes that the penalties can be heavy. Indeed, it is a case for which in equity, you propose to proportion, to find a subtle balance between the necessity of punishing the one who did not respect his obligations compared the one who respected them.
In the second situation, it is about the intrinsic equity evoked previously. It is within the legislative scheme concerned. This is the symmetric of the abuse of process. The abuse of process occurs when a taxpayer applies to the letter of the law, contrary to its spirit. The consequence is that he pays less tax than he should have.
The opposite, it is when the letter of the law leads to a rectification which is lawful but, when we think about the spirit of this law, about the will of the legislator, about the way this tax works intrinsically, we have to recognize that the consequence is to pay more tax than what is due. It is a different situation compared with the first. It raises us problem. Why? Regarding direct tax, we remit the principal of the tax only regarding poverty. However, this situation, expecially on the side of companies, but also for physical persons with important income, may appear intrinsically inequitable even if the person is able to pay.
If you wish, I can digress on this question of vertical and horizontal equity. This is a concept that is directly related to the income tax and more generally to the use of tax revenues for redistribution of income.
The vertical equity is like this : how much do I have to charge anybody who has high income with regard compared with somebody who has more lower income? It is about the progressiveness of the tax, knowing that there is no intrinsic truth on this subject. There is no immanent law which specifies us what is the slope of the curve. The slope of the curve is a decision of political order.
Horizontal equity is easier to measure : with equal income, equal tax equal. Our paradox is our focus, politics and media, on vertical equity.
We refer rarely to the horizontal equity.
Let us take the example of the measures recently announced and concerning the family policy. If we focus on families, we can justify to harden the system of family quotient. We make vertical equity only with the families. But if we look at the result in terms of horizontal equity, why to ask only families for an income tax effort and not to the other households having higher income? If we look at the situation of households without children and with income is below the limit of the new portion to 45 %, they are affected only by the freezing of the scale.
But let us close this bracket and let us return to the concept of intrinsic equity.
The problem for this second form of equity, is that it is intrinsic in the device. We have indeed a text which allows us to propose cuts in direct taxes , provided that the person is living in extreme poverty. There are many situations which are not covered. For indirect taxes: nothing. For the VAT: nothing.
For the registration fees : nothing. Only penalties. I draw your attention on the fact that there is a subtle difference between the transactions made at the request of the taxpayer and the transactions made at the request of the administration. When the administration proposes a transaction, it may be done only on penalties because it is based on the fiscal texts. But, when it is the taxpayer who proposes a transaction based on the civil code, in the name of the general interest, the administration can consider that this proposal is in accordance with the interest of the administration because it allows to return some money immediately with the commitment not to make dispute while the dispute is uncertain. If you are in a situation where it can be demonstrated that the issue of dispute is uncertain, it is possible to make transactions on the principal.
This is why you can notice that, in some cases, the transaction is proposed by the taxpayer.
I think to fully understand the notion to judge sometimes in right, sometimes in equity it is necessary to accept the fundamental asymmetry between the tax administration and the taxpayer. I feel the reactions of some of you “This is too easy! The taxpayer wins every time: he is right in law and therefore he is right or it is wrong in law, but he is right in equity. Thus he is always right. But we, when we forget a receipt, we are wrong in law, right in equity, but we lose. ”
We speak about asymmetry for the following reason: the taxpayer is a physical person or a moral entity. He has the ethics and the behavior he chooses. He can choose to refer to the law not to pay a tax which he should have paid in equity. We are in State subject to the rule of law.
But you, you represent the State. If you meet a situation where the tax is straight ahead due by law ” dura lex sed lex ” but your conviction is that he is not based on equity, that this tax should not have been paid, you have to return it . There is thus this asymmetry, which I know that it is fundamentally irritating but it is nevertheless necessary to you to accept it.
A question arises then : do I have to accept this situation for all the taxpayers or only for the “good” taxpayers?
We reach here the notion of moderate application of the fiscal law. Every state employee becomes a judge in equity, he chooses to do or not to do. The moderate application of the fiscal law often led to the following situation : if I am convinced that the taxpayer who is in front of me is honest, that he has to pay the tax according to the law, but I consider that in equity, he is not in capacity of paying it, I do not charge him. If I fall on a “bad person”, I say ” You old man, you should not pay, but I know how to oblige you with the law you , that will be for all the times when you me ” had me there!”. It is this kind of drift that practises every football referee who makes some compensation. I forgot to whistle for a penalty to the first half, I whistle for an imaginary penalty. Two inequities compensate each other?
First example : one of my clients managed gift vouchers. He issued gift vouchers which were given to people for different kind of promotions. These people went then to a distributor, paid with the gift. My client paid the distributor with money given by the issuer of the gift voucher. To make “bulking up” on his accounts, he found appropriate to count the total amount of the gift vouchers as revenue but when paying the distributor, he recorded these checks as expenses. He did not fulfill any condition of deductibility of VAT but do not pay VAT on the whole. He did pay on his margin because it was the service provider. The auditor intervenes and applies VAT on all without deductibility since it does not fulfill the conditions for deduction rights.
You have a person who is paid by a commission of some %, you apply him a VAT at 19.6% on the 100. It presents a problem: the amount of VAT is equivalent to several times his annual revenue. Everybody would have wondered if he has to continue. I asked the Department of tax legislation. They answered that “It does not make sense”. So I asked the sub-division of the tax not to prosecute. I have been said, “We need to ask for a report of the services and we have to give him 60 days”. Meanwhile, the auditor refused to stop the accounts. Ultimately, the rectification has been abandoned.
In this case, we realize the usefulness of the Ombudsman’s intervention.
Thee second example is less caricatural, but occurs very frequently: it is about unpaid VAT however, it does not mean that there is fraud. A British taxpayer, used to the system of tax suspension within groups – in the British system so long you are within a group, the VAT is applied only to the exit- did the same way in France. He had not cheated but, when he reached the stage of retail selling in the last subsidiary of the group, he applied the VAT without any right to deduction because there had been no VAT paid before. The total amount of the VAT was paid at the end. The auditor, believed that it was fraud, did the triple taxation because he noticed that the company which had charged was not the one which should have charge
For the one who charged and who should not have charged, the VAT remains due.
For the one who did not charge and who should have charged, he owes the VAT.
The one who deducted the VAT does not qualify and cannot deduct it.
There is no fraud. Not only, there was no fraud, but there was either no intention to cheat.
According to the law, you cannot go in front of the judge
A third example: services not charged in a group which is not a group fiscally integrated. If there is no optimization because one of the two companies is profitable and the other not, the state has not been “cheated” : I should charge 100 and the other company would have benefited from 100 for deductible expenses.
I only have two years to claim and administration 3 years to rectify. The administration thus rectifies the one who should have charged and tells the other company, “you can not apply deductions.” According to equity, this is unfounded. The moderate application of the law, the idea that we have of fiscal morality, brings us to maintain or not the taxation.
A fourth example concerning the bad configuration of a software ERP. A storekeeper takes out a part and generates a book entry. Formerly there was a software of inventory and without interfacing, accountants who seized invoices.
A storeman noticed that he made an error, he ratified in March an exit of stock made in January.
He thus generated a rectified invoice for the month of January while we were in March. This invoice wore a number of March and the storekeeper dated it January. The auditor intervenes and rejects the accounting.
It is not a fraud but an oversight of blocking the rectification in the right time.
A fifth example: you have the case of IFU in intra-groups. The IFU ie tax returns from capital paid on banks, but also any company that pays dividends, interests.
Within a group, a subsidiary pays a dividend to its parent company. Tis is recorded, sometimes neutralized in the tax system of the group. It is nevertheless necessary to establish an IFU.
The penalties are huge when this IFU is not establishes.
Nevertheless, some people ignore when it is necessary to establish IFU between subsidiaries and parent companies.
Formerly, it was enough to get in touch with the local tax department and ask to regularize. Today, it has become impossible. It is necessary to rectify the years prescribed, to undergo the fine and to go to the committee of the tax litigation.
These problems can be settled only by a pragmatic approach, either by a hierarchy, or by mediation bodies.
The disappearance of the ministerial fiscal unit is problematic. This cell had a major inconvenience: it gave the impression of being political because it was placed with the Minister of the Economy and Finance. The cell did what the hierarchy should have upstream done.
A tax official, inflexible when he was in services, said, once moved in the cell : ” such cases should never reach us! “. You replace him in the services and this same agent becomes again inflexible. This shows that it is a question of function and not a question of person . The only solution is to have agents outside the tax sector and its recovery in order to make equity control.
Emmanuel CONSTANS : “Thank you Michel for this dynamic presentation and concrete examples on this subject.
I retain in particular the concept of horizontal equity that is sometimes forgotten.
I also retain this element to which I am very attached which is the asymmetry between the taxpayer and the tax administration. This is a very important point, a key element where mediation is justified by the asymmetry between the company or a”lambda” customer and certain administration practices .
Then this notion of the pragmatic approach and hierarchical frame is also very important. I am very attached to the exercise of formal appeal. The pragmatic approach may lead to mediation.
I would want, from these two performances, to hand over to the room for reactions, observations, questions to our speakers.
I wish to ask a question to Béatrice MAJZA concerning an expression which you used repeatedly ” the positive discrimination ”
I feel that it is a bit like Monsieur Jourdain: finally the legislato has to make some positive discrimination but without giving it that name because I remember that politically, we can not make positive discrimination in France. Do you consider that there are many measures of positive discrimination in France on the legal plan?
Béatrice MAJZA : “Indeed it is the principle of equality that prevails. I think of some decisions of the State Council in the 90s on provisions concerning music school . We indeed allowed allowed to differentiate registration fees in music schools and in the canteen. The mode of positive discrimination is not necessarily shown as such. The immediate concern is to prevent a kind of assistantship, hence the need to proportion, to justify (not always within a time limit : access to music school can be long). The safeguard for equality would be here the general interest ”
Emmanuel CONSTANS : “Thank you very much.”
A participant : “I would like to ask a question to Béatrice MAJZA. The principle of equality is the basis of our written law, distinguishing itself from the Common Law which is an oral law.
What is your feeling about the resistance or reluctance of the administration with respect to approaches to equity?
Béatrice MAJZA: “Indeed, we are in a state of law, in a system of written law, distinct of the Common law and written law is the principle. The jurisprudence is the secondary concern for the law. The judge has to prevail be above all the written rule. It is for this reason that equity does not always says its name. We identify it bay deduction, by reading the décisions. The principle of equality is at the top of the hierarchy, it is the basis of the Declaration of the Rights of Man and of the Citizen. We are very attached to this principle in French law.
In Great Britain, with Common Law, the jurisprudence is one of main source of the law and equity was able to develop in a more flexible way. The development of the equity is historic, it is a reaction to the Royal courts. The equity developed under Tudor in the XVth and XVIth centuries. But it has been crticized because, the Chancellor made the law on a case by case basis, but he went sometimes too far. Therefore, the English Parliament managed to push aside the equity. Today, in Great Britain, the equity is only a rule easing the decisions of royal court. Chancellor has no longer the same role.
Michel TALY: ” the difficulty is the way how is recognized and works the rule of law in the particular case. It is said in the Constitution that each details of the tax base are of the filed of the law. The exemption can thus be made only in the hypocrisy. So, I cannot write to the taxpayer: ” in your situation, we will exclude the application of the article 248 of the Tax Code “. I do not have the right to say it. I thus write: ” considering the case which you presented to me, it seems that the article 248 is not applicable to you. “. The inconvenience of this approach, is that it takes place without control because, if I have the right to make exemption to the rule, I have to report it in our system which is institutional.
In the American system, we find the famous regulations, which contrary to our instructions, are the norm. And since this the norm, they have to justify. How do they proceed? Their regulations are annually reviewed by the Commission of the finances of the Congress which verify the respect for the imperative of general interest, of proportionality. We, we report to nobody. It is the reason why, we need to be placed with the Minister. If I, officer, I had, had ” contra legem ” decisions which resulted not to charge such amount of money, the Budgetary Discipline Court would have intervened. The Minister is only subject of the Court of justice of the Republic, and not the Budgetary Court Discipline. That’s why I refer to him to validate the proposal that I made. Under the pretext of exaggerated respect for the legislative source and not recognize that there are possible exceptions, we deprive ourselves of the possibility of control.
Let us take an example. We had tried to solve the problem of tax regime of the distributions. We tried to see in which case a share buyback must be handled as a dividend and in which case it must be handled as added value.
I was interested in how the Americans proceeded.
Americans distinguish between proportional and non-proportional distributions . Proportional: all shareholders have the same repurchase, so it was a dividend. Non-proportional: a shareholder withdrew or reduced his participation and it was added value again.
The text defined cases of proportional distribution, but he ended with ” and any distribution which the administration will qualify as such “. Thus, ultimately, the legislator recognized a power to the administration to consider the distribution as proportional or not proportional. He had to justify himself of this power of qualification later. I always thought that the only way of bringing a solution to the problem of ministerial fiscal unit – that it was necessary to remove to protect politically the Minister – was to establish, somewhere in the administration, a unit which would have the right to pronounce derogatory decisions, but under the control of the Commission of finances of the National Assembly and the Senate.
We should have an equivalent entity to the Ministerial unit which produces an annual report and the Parliament can control the respect with the spirit of the law, the public interest, the proportionality.
Emmanuel CONSTANS : “Thank you, Michel, for having raised the concept and importance of the report in terms of control. As Mediator, I am very attached as each member of the Club of Mediators of Services to the Public, to the notion of public annual report. When a mediator asks to join our association, the request is as follows: “Do you publish an annual report on your activity? “.
We believe that transparency on the activity is fundamental for the public opinion. The public is entitled to require to be informed because taken decisions, recommendations, have a financial impact. The concept of reporting is fundamental in a democracy. Most authorities in the fisal area present an annual public report.
Last year, during the day of the mediation held in Bercy, we had the intervention of several lawyers who use to appeal to the Mediator. They explained us that there are some cases, according to them, are a matter of the mediation because they involve both law and equity. On the other hand, are not covered by the mediation because they involve legal elements in certain domains and can be resolved, according to these professionals of the law, only at the level of jurisdictions. I tend to think in the same way : all the cases, including in the fiscal area, are not within the mediation.
A participant: ” we often speak about the correction of absurd situations. I think, indeed, that it is normal to adapt individually. Texts cannot plan all the cases. For my part, I feel more difficulties with texts which, by nature, can seem inequitable, inequity could even result from the will of the legislator and give rise to correction by an official. This state official, taken individually, in territories, are not subject to any form of control. I am thionine in particular to local taxes or contribution to the public broadcasting which is due including by users who benefit from the RSA (active solidarité revenue). Previously, with the RMI (minimum guaranteed income), they were exempted from it. In departments, we correct this type of decision which, according to me, has to be left to the legislator.
As a citizen, I am very embarrassed that any state official in the country and in a subjective way is able to correct a legislative provision. I think that the correction of the inequity created against inequity. Indeed, all those who do not make this administrative recourse or appeal for a mediation find themselves in unfavorable position.
Michel TALY : ” Fortunately, this is a situation that does not happen very often in our country, and it shoes that our tax system is appropriatly designed .
I made a mission ADETEF for several years in Palestine. It was to help the Palestinian administration to manage tax across the country . The local tax system is so unfair that officials are reluctant to apply it . Some agents nevertheless dare to change the tax base, without any control . Others choose to assess but not to recover as many Palestinians are not able to pay. Others, in some municipalities succeed in charging the tax because it is the municipality that delivers electricity, that provides access to education. They threaten to cut the electricity or to prevent the access to the school as long as the tax was not paid.
What’s to be done when the legislator wanted an inéquity?
By correcting an inequity in a department, the state official is going to generate an inequity somewhere else ”
Emmanuel CONSTANS : ” I completely agree with this answer.
At least it would be necessary to ensure that there is harmonization in the administrative practices. This was done when it was asked to the General Treaaurer and Paymaster, a few years ago, to harmonize the recovery within their department.
Serge Arnal : “As a concrete example, a few years ago when I was a tax-inspector, my work was to examine administrative appeal regarding local residence tax. Taxpayers told me: “I can not pay my residence tax.” I pronounced then, in many cases, a reduction or remission of tax. As a public official, I acted in a subjective way.
Article L. 247 of the Book of Tax Procedures regulate the power of officials in charge of administrative appeal regarding tax and the legislator adapt taxation to economic and social context. Today, when I read some answers in reports made by the tax authorities and the fiscal conciliators: “You have an income of 800 euros, you can pay your taxes,” I feel it hard to think that someone who has 800 euros per month is able to pay its current living expenses, to pay taxes and tax debts without any difficulty.
Can a state employee take himself decisions in equity? Let us take a concrete case : I drive, I run a red light because a badly parked truck hides the red light. I drive normally, the policeman stops me and says to me: ” you have gone though a red light, I give you a fine. I can answer him: ” I was unable to see this light because there was a truck. If I go to the court, I will have no proof because the policeman, who is sworn, raised a notice of violation and found a justified infringment.
But, the policeman can also consider that the truck should not have been there and decide not to give me a fine. In this case, does the policeman practise the equity?
A participant : “Mr. TALY outlined several cases showing that our organization does not allow to answer the difficultés posed by the strict application of the texts. When Mr. TALY told you, “Mr. CONSTANS now, I will have recourse to the Mediator to defend my cases,” you answered: “For a number of very legal subjects, it is not quite the role of the Mediator. “I am surprised with this answer because, if we consider that equity is a supplement to the application of the legal rule, ie it is part of our system of law, there is no limit to your intervention even when the case presents a legal difficulty. What leads you to answer to Mr. TALY that the subjects he discussed could not be handled at the Mediator level?
Emmanuel CONSTANS : ” Thank you, for your question . I must say that I agree with your analysis and your position. I made this indication after reported comments made by lawyers. This is not a substantive response, but as a precaution, to avoid being overwhelmed with cases within the Framework of a team that is a relatively small team , which relies moreover on your skills and your cooperation . We sometimes handles files with a strong legal character and high financial stakes . But it is true that the Mediator is often approached for further requests relating to taxation of individuals, issues concerning SMEs. These issues often involve equity aspects and not only legal interpretations between jurisdictions or between legal advisors and the court. In this case, I can be brought when the case is quite advanced on the jurisdictional level (because there is a right time to complain : not too early , not too late) to let the court decide . But in terms of limit, it is true that there is no limit . ”
The same participant : “I expected a little this response.
I go back to another topic: the need not to create inequity in dealing with individual situations and harmonize on the whole territory the solutions to be proposed. Michel TALY recalled that this was once treated by the tax unit placed with the Minister. So was settled the local residence tax reform in 2000 because almost everywhere in France, officials received administrative appeals . Over 400,000 taxpayers for local residence tax have been exempted.
But this role, the Mediator could fill it as he is precisely intended to make proposals regarding legislation. But if you do not embrace the entire field, we notice that there is a vacuum for the subjects raised by Mr TALY.
There is doubtless a reflection to be led about the location of this unit. It is placed with the Minister and we see at once to which doubt, to which suspicion it can lead.
Moreover, the establishment of the Médiator is not completely indifferent to the suspicion that we may have with respect to this unit just before 2002.
This unit in the administrative sphere, could be protected, as mentioned by Mr. TALY by a control of Parliament and a third authority.
Emmanuel CONSTANS : ” Thank you for your intervention. I totally agree with your point of view which resumes Michel TALY’s suggestion. I believe that we have to work on it, to think about it. And the Mediator, when it is appropriate, can make proposals in this domain. I was always very careful regarding the organizational aspects but I indeed believe that the disappearance of the unit is not related to the increase of the number of cases I treat even if a part of these cases went are now handled by the Central Administration and the DGFIP. There are possibilities which can develop by reform proposals. “.
Michel TALY : “I think what is very important is to have state officials who really wanted, on a voluntary basis, as planned by Jean-Pierre LIEB, to play this role which is to put equity , in a homogeneously way into the system. They must be differrent from those who apply the law to prevent abuses. There is not only independence, there is also the appearance of independence.
I think the way you operate, in a network, to solve mediation requests is the right answer. ”
Emmanuel CONSTANS : ” Thank you very much for this appreciation. Thank you to our speakers.
We will drawfrom our exchanges, the proceedings of this conference. I think that it is important to keep track, to pursue the reflection on the topics which we discussed this afternoon. The Mediator pronounces in law and in equity and I believe that this formula is particularly relevant. “And” allows to put them on an equality level because they are both very important. There is really a notion of balance: the equity has to be held within certain limits. It is also necessary to remember this notion of pragmatism in all respects Michel TALY mentioned : pragmatism in the fiscal field and in the institutional field to deal with the disputes as good as possible.
Thank you for having answered our invitation and come to Cabourg.
Dear correspondents, I would like to thank you all for your presence for the the mediation day in Cabourg. I hope that you will consider it as enriching, profitable and useful. I deeply thank you for your cooperation and treatment of mediation cases.
I would also like to thank my team for the organization of this day