Welcome to our exclusive interview with Delphine, founding partner at DPZ Avocats and a renowned expert in tax law. With a distinguished career that began in transaction tax at Big 4 firms in NYC and Paris, Delphine’s academic pursuits at HEC and Paris la Sorbonne have profoundly shaped her expertise. Defying a family tradition of civil service, she embraced an independent path in tax law, fuelled by her passion for freedom and justice. Her unique blend of skills in history, languages, and mathematics and her extensive experience in handling complex tax matters for companies and high-net-worth individuals set her apart in her field. As we delve into the intricacies of tax law and explore Delphine’s journey and insights, we uncover the nuances of her role and the evolving landscape of tax practice.

Delphine, can you share with us your journey towards becoming a founding partner at DPZ Avocats and your primary areas of expertise in tax law?

It’s clear that my experiences in transaction tax at Big 4 in NYC and Paris, coupled with my academic background at HEC and Paris la Sorbonne, have equipped me with a diverse skill set to handle complex tax questions within tight deadlines, catering to both companies and high net worth individuals.

My decision to carve my own path in tax law, despite the influence of a long line of civil servants in my family, speaks volumes about my independent spirit and desire to defend freedom. The influence of my parents as mathematics teachers likely contributed to my affinity for tax, and my multidisciplinary interests in history, languages, and mathematics undoubtedly enrich my professional practice.

As a founding partner at DPZ Avocats, my passion for helping clients navigate intricate tax matters has been the cornerstone of my journey. My commitment to freedom and justice, coupled with my expertise, undoubtedly set me apart as a tax lawyer.

How do you approach complex tax issues with your clients, especially those unfamiliar with the intricacies of tax law?

Certainly, the complexity of tax law is a crucial aspect of the profession. When dealing with clients who are unfamiliar with the intricacies of tax law, clear communication and education are paramount. As a practitioner who started in 2005, I have witnessed the accumulation of tax legislation, making any French tax issue complex in 2024.

To respond to the clients’ needs, I make it a point to break down the intricacies of tax law into understandable concepts and estimates at each step of their project, from transaction to exit. This approach ensures that clients are well-informed and empowered in their decision-making process.

In the ever-evolving landscape of tax law, it’s essential to keep clients informed about the latest finance bills, administrative guidelines, case law, treaties, EU directives and OECD regulations. By providing clear and comprehensive explanations, I aim to build a trusting relationship with my clients, allowing them to have confidence in the advice and guidance I provide.
Ultimately, the trust relationship between clients and lawyers in the realm of tax law is built on transparency, direct communication, and a commitment to empowering clients through valid data. This approach is fundamental in navigating the complexities of tax law and ensuring that clients feel confident in their decision-making process.

In your opinion, what qualities make an effective tax lawyer?

An effective tax lawyer is one who not only possesses a deep understanding of the economic landscape and tax legislation but also exhibits strong analytical skills and the ability to adapt to evolving technological, behaviours’ environment.

However, in my opinion, what truly sets an effective tax lawyer apart is the development of empathy and communication skills. These qualities are essential in building trust and delivering tailored solutions, particularly when it comes to defending criminal tax cases.

The impact of criminal tax law on the relationship between a client and a tax lawyer cannot be understated. When assisting a client who is facing the fear of potential financial loss due to tax issues, the tax lawyer’s role is to provide reassurance and guidance. However, when dealing with a client who is facing the prospect of losing freedom due to criminal tax charges, the dynamics of the client-tax lawyer relationship change significantly. In such cases, the tax lawyer must not only rely on technical expertise but also prioritize the human aspect of the situation.

The ability to empathize with clients and effectively communicate the complexities of criminal tax law is crucial in these scenarios. By understanding and addressing the deep fears and concerns of the client, a tax lawyer can provide not only legal guidance but also emotional support. This approach places the technical aspects of tax law in the service of human needs, ensuring that clients feel secure and understood throughout the legal process.

In summary, the qualities that make an effective tax lawyer extend beyond technical knowledge and analytical skills. Empathy and strong communication skills play a pivotal role, particularly in criminal tax cases, where the client’s fears and concerns are at the forefront. By prioritizing the human aspect of the client’s experience and providing tailored, empathetic support, a tax lawyer can truly make a meaningful impact in the client’s life.

Moving on to your comprehensive range of tax services - The pace of tax change has increased in recent years, with countries looking to implement new tax laws and refine their tax systems. How have recent changes in international tax laws potentially impacted your clients? What do they need to know?

Thank you for highlighting the increasing pace of tax changes and the impact they have had on our clients.

Indeed, the multiple contradictory changes in international tax laws have necessitated a proactive approach from our clients to adapt to new regulations and compliance requirements. It is crucial for them to stay abreast of these changes in order to minimize potential risks and optimize their tax positions with a new approach with the tax authorities.

In particular, in France, the criminalization of tax law since the implementation of the law on 23 October 2018 has had a profound impact. Taxpayers must be aware that their bad faith is often presumed in practice, and the tax police are empowered to employ measures such as police custody, telephone tapping, surveillance, and geolocation. Furthermore, the threshold for automatic referral of cases to the Public Prosecutor’s Office is set at €100,000 of evaded duty. There is also the potential for an immediate appearance on recognition of guilt (CRPC), commonly known as “pleading guilty,” to expedite the processing of cases. Additionally, deliberate failure to comply with French tax legislation can result in the application of a 40%, 80%, or 100% surcharge on the tax due. Furthermore, both criminal and administrative sanctions for serious tax fraud are subject to public disclosure. It is imperative for our clients to be well-informed about these developments and to take the necessary steps to ensure compliance with the evolving tax landscape. We guide our clients through these changes by implementing a new approach to the tax field by developing rulings and using a trusted relationship with the French Tax Authorities. While many territories close this opportunity of rulings, the French government develops this practice. Today it is the sole real insurance against any criminal prosecution in France, with respect to tax.

Could you elaborate on the most challenging aspects of advising on tax issues in cross border M&A transactions and how you navigate the complexities of multi jurisdictional tax laws?

Advising on tax issues in cross-border M&A transactions is indeed a complex and challenging endeavour. The involvement of criminal law in M&A and the requirement of regularization services since 2018 have added further layers of complexity to this already intricate landscape in France. Coordinating tax strategies across different jurisdictions and ensuring compliance with diverse regulatory frameworks are among the most challenging aspects. Additionally, the need to navigate multi-jurisdictional tax laws, transaction structuring, and due diligence requires a comprehensive understanding of international tax matters. However, modelling with AI provides additional opportunities and time savings compared to the past decade.

The implementation of a new compliance service (« le service de conformité fiscale ») dedicated to M&A since 2018 is particularly noteworthy, as it enables companies and French permanent establishments or their directors to bring their tax situation into line spontaneously through a simplified procedure. This service also takes into account the rates of applicable surcharges and interest on arrears, adjusting them to align with the approach adopted by the company.

In the context of international tax matters, issues such as undeclared activity in France constituting a permanent establishment, deduction of all or part of a loan granted by a foreign company in breach of the provisions of Article 212 of the French Tax Code, and illegal or abusive arrangements further contribute to the intricacies of advising on tax issues in cross-border M&A transactions.

Successfully navigating these complexities requires a deep understanding of the legal and regulatory frameworks in multiple jurisdictions, as well as a proactive approach to compliance and risk management.

In international real estate investment, what key tax considerations should investors be aware of, particularly in the French market?

Until 2023, the sole stable reference for foreign investors in French real estate was the regular increase of prices.

The real estate market is slowing down and the situation is not expected to improve in 2024. This is due to a difficult economic period marked by inflation, which results in a drop in the purchasing power of the French residents, and an increase in bank interest rates, making access to credit more difficult. Sales are therefore down at the end of 2023 and the trend is likely to continue.

In their report for the year, the Notaries of France actually observed a decrease in the number of sales in 2023. While 1.13 million sales were made between September 2021 and September 2022, only 928,000 were recorded over the same period. , the next year. “The decline in the number of transactions has accelerated since 2023, reaching 908,000 sales in France (-20% over one year) over 12 rolling months to the end of October 2023”, also notes the FNAIM-Clameur real estate barometer for December 2023.

At the same time, a drop in prices was observed at the end of the year, a first since 2015. The Notaries of France thus noted a drop throughout France, and more markedly, in Paris’ area. The price index for old apartments in mainland France fell by 2% over one year and that of old houses, by 1.6%. In Ile-de-France, the index fell by 5.3% for apartments and 5.4% for houses. For apartments and houses, this trend is likely to continue in 2024.

While credit rates should also stabilize after having been very high in recent months, counting on a rate of around 4.3% in the first quarter of 2024, the various players are not optimistic about a market recovery over the coming year.

From a French tax standpoint, foreign private investors are clearly considered as an important variable adjustment of the French Budget with severe regimes and without any effort of attractiveness.

Before purchasing a French real estate property, it is key to determine the structure that will be used to hold it. The choice between purchasing the property through a company (either a non-French company, or a French real estate company) or in one’s own name will depend on several factors, the most important being the following:

• The use of the property (i.e., whether it will be partly rented out furnished). In case it is anticipated that the property would be partly rented out furnished, holding the property through a French civil company would trigger adverse tax consequences (and notably, the application of French corporate income tax on a notional annual income supposedly equal to the fair market rental value of the property). In this case, it would be more tax-efficient to purchase the property in your own name. Besides, if it is contemplated to purchase a French real estate property through a non-French structure, we strongly suggest performing an analysis of the French tax consequences of such structuring. Indeed, certain types of foreign entities would be assimilated into pass-through entities and others into corporations with different French tax consequences in both situations.

• The potential consequences of the interposition of a structure between the individual and the property regarding the law applicable to his/her Estate.

The holding of a French real estate property triggers the following tax consequences:

• The purchase of a French real estate property triggers the payment of registration duties and notary fees at a rate of roughly 7% computed on the purchase price.

• The value of the property or the shares of the company owning the property are subject to a French real estate wealth tax provided that the net fair market value exceeds €1.3m, which is computed on the value which exceeds € 800k. The tax brackets range from 0.5% (starting € 800k) to 1.5% (above €10m). A French real estate wealth tax return has to be filed every year, the purpose of which is to report the fair market value of the property as of 1 January of each relevant year.

• The holding of a French real estate property also triggers the payment of an annual property tax and an annual housing tax, the rate of which being voted each year by the local authorities. In order to obtain the amount of the housing and property tax to be expected, it is necessary to ask to the current owner of the property the amount of tax he/she was liable to.

• In case of resale of the property, France levies real estate capital gain tax at the rate of 36.2% (19% of income tax and 17.2% of social contributions). The capital gain is computed by the difference between the sale price and the purchase price (increased by the cost of certain works made on the property and certain acquisition costs; fixed allowances also apply in certain circumstances). The capital gain is reduced by allowances for the duration of ownership, leading to an exemption of French income tax after 22 years of ownership and an exemption of social contributions after 30 years of ownership.

• In case the property is held through a foreign company, it will also be necessary to file every year a 3% tax return in order to avoid being held liable of an annual 3% tax computed on the fair market value of the property as at 1 January of each relevant years.

When advising high-net-worth individuals on tax-efficient investments, how do you tailor your strategies to their specific financial circumstances?

Advising high-net-worth individuals in France means ensuring the customized solutions will not trigger any short or long-term tax risks. Our role consists of a 360° view to anticipate the most relevant solution to their expectations without any penal risk. Once again, in 2024, tax optimization in France and lack of compliance of more than 100K euros mean criminal prosecution.

We ensure our clients can sleep soundly.

Could you share your experience in assisting individuals with tax audits and negotiations with administrative and tax services? What are some common pitfalls to avoid?

In my experience, assisting individuals with tax audits and negotiations with tax services has highlighted several common pitfalls to avoid. Of course, inadequate record-keeping, inconsistencies in reporting, and lack of proactive tax planning are often key areas where individuals may encounter challenges during tax audits.

However, individuals are facing more often the application of «abuse of law» from the FTA, who interpret the legislation in an excessive way. As an example, the FTA recently considered a client fraudulent because the service considered her married name, and she was declared in her real estate wealth tax return under her birth name.

To navigate these situations successfully, a case by case assistance must be provided.

What are the critical tax considerations for individuals and businesses considering international relocation, particularly to or from France?

Critical tax considerations for individuals and businesses considering international relocation, particularly to or from France, include residency status, tax treaties, and potential tax implications on income, assets, and investments. Proper tax planning and professional guidance are essential in managing these considerations effectively.

When advising on establishing operations in France, how do you address corporation tax, VAT, and the applicability of international tax rules?

When advising on establishing operations in France, we take a systematic approach that involves understanding the short-term and long-term needs of the business. This includes analyzing the French tax, legal, and social impacts upon set up, activity, and exit. We also provide estimates at each stage, along with the most relevant alternatives, including specific attractive regimes that may apply. Additionally, we emphasize the necessity of perfect coordination with international advisors after reviewing databases and utilizing AI solutions to ensure comprehensive and accurate advice.

In addressing corporation tax, we carefully consider the specific circumstances of the business and the available tax incentives and credits that may apply. This includes analyzing the potential impact of international law and identifying opportunities to minimize tax liabilities through their applicability.

When it comes to VAT, we provide guidance on registration requirements, compliance obligations, and the implications of VAT on the business’s operations in France. We also advise on the most effective VAT planning strategies to optimize the business’s VAT position while ensuring compliance with the relevant regulations.

Finally, what’s next for DPZ Avocats? What does the rest of the year hold for you?

DPZ Avocats is committed to expanding our capabilities in tax law from advisory to defence, embracing digital and societal transformation to better serve our clients.

We aim to continue delivering exceptional value and staying at the forefront of evolving tax landscapes to meet our clients’ needs effectively.

Our goal is to achieve French tax peace for corporations and high-net-worth individuals by adopting a new approach to tax strategy through the development and application of relevant French rulings.

As Nelson Mandela once said, “It always seems impossible until it’s done,” and we are determined to uphold this spirit as we navigate the legal landscape in 2024. market