Lease to a trade union: exemption from additional tax

You are the owner of a commercial property in Cassis which you lease to a trade union. Each year, you receive an assessment for the additional tax on lease rights from the tax authorities. You wonder: is this tax really due? The answer is no, according to the Court of Cassation in a judgment of 3 January 1984. Premises leased to an organisation set up to defend the corporate interests of its members, such as a trade union, are not used for the exercise of a profession. Consequently, the additional tax on lease rights, which only applies to lettings of business premises, does not apply. Analysis.

The facts: a story like many others

Mr X, owner of a building in Istres, had leased premises to a trade union of the salting and wholesale charcuterie industry. This union, constituted under the Labour Code, had as its object the defence of the corporate, economic and social interests of its members. The tax authorities levied the additional tax on lease rights, considering that the premises were used for the exercise of a profession. Mr X contested, arguing that the union did not exercise a profession for tax purposes. The court ruled in favour of Mr X, and the authorities appealed to the Court of Cassation. The Court of Cassation dismissed the appeal, confirming that premises leased to a trade union are not used for the exercise of a profession.

The reasoning of the court — dissected

The Court of Cassation relied on Article 1635 A-I-1° of the General Tax Code (CGI). This text subjects to the additional tax on lease rights the letting of premises used for the exercise of a profession. But what is a 'profession'? The Court adopted a strict interpretation: a profession involves the exercise of a lucrative activity by a natural or legal person for personal economic gain. However, a trade union does not exercise a profession; it defends the interests of its members. It does not matter that the union employs staff or has equipped premises: the nature of the activity is not professional. This is a confirmation of case law: unions are not professionals for tax purposes. The authorities argued that the union carried on an economic activity, but the judges considered that the statutory object and the quality of the members (only unions, not individuals) excluded any professional use.

What this means for you — practically

If you are a landlord: if you lease to a trade union (employers' union, employees' union, trade association), you can apply for a discharge of the additional tax on lease rights you have paid. The deadline for a claim is generally until 31 December of the year following the assessment. For example, for a lease in Istres with an annual rent of €12,000, the tax may be 2.5% of the rent, i.e. €300 per year. Over 5 years, that is €1,500 to recover.

If you are a tenant (union): you can inform your landlord of this case law so that he does not pass on the tax to you. You can also claim reimbursement of sums unduly paid if the lease contained a pass-through clause.

If you are a purchaser: check the tax situation of the property. A lease granted to a union may reduce the tax burden, which increases the net rental value.

Four tips to avoid this type of dispute

• Check the nature of the tenant: before signing a lease, ensure that the tenant is indeed a trade union constituted under the Labour Code. Ask for a copy of its articles of association.
• Draft an appropriate lease clause: specify that the tenant is a trade union and that the premises are not used for the exercise of a profession. This will facilitate your tax claim.
• Keep supporting documents: keep the union's articles of association, the lease, and the tax assessments. The authorities may ask you to prove the tenant's status.
• Submit a claim within the time limit: if you have paid the tax, send a contentious claim to the Business Tax Office (SIE) within two years of the assessment.

Further reading: related case law and developments

The Court of Cassation maintained this position in a later judgment of 15 October 1985 (No. 83-15.432), concerning a condominium owners' association. The trend is consistent: only premises where a personal lucrative activity is carried on are subject to the additional tax. Conversely, for leases granted to associations carrying on a competitive economic activity (for example, a sports association with paid admission), the tax is due. Since 1984, the legislation has not changed on this point. However, recent case law on the concept of a permanent establishment for VAT purposes could influence the interpretation, but for now, the rule remains settled.

Frequently asked questions

• Is a condominium owners' association treated as a trade union? No. A condominium owners' association manages common parts; it has no corporate object. The tax is due.
• Can I claim reimbursement of taxes paid more than 2 years ago? No, the claim must be made within two years of the assessment. After that time, reimbursement is impossible.
• What is the amount of the additional tax on lease rights? It is equal to 2.5% of the annual rent (excluding charges) for leases entered into from 1 January 1999.
• Must the landlord declare the lease to the tax authorities? Yes, the lease must be registered within one month of signature. The tax is due annually.

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