The tax regime of the mixed compensatory benefit deemed unconstitutional, but not repealed (Cons. const. 31-1-2020 no. 2019-824 QPC)
Seized by the Council of State with a QPC, the Constitutional Council, in a decision of January 31, 2020, ruled that the tax regime of the mixed compensatory benefit provided for in paragraph II of Article 199 octodecies of the CGI resulting from Law 2004-439 of May 26, 2004 on divorce was unconstitutional, while specifying however that the provisions declared contrary to the Constitution were no longer in force (Cons. const. 31-1-2020 No. 2019-824 QPC).
The tax reduction would therefore remain excluded today in the case of a mixed compensatory benefit, until a new decision of the Constitutional Council.
Reminder of the tax treatment of compensatory benefits
In accordance with the provisions of paragraph I of article 199 octodecies of the CGI, the debtor of a compensatory payment who fulfills his obligation within twelve months from the date on which the judgment has become final, benefits from a reduction in income tax equal to 25% of the amount set by the judge, retained within the limit of €30,500 (i.e. a maximum reduction of €7,625).
By virtue of the provisions of paragraph II of the same article, when the compensatory benefit takes the form of a capital payment made within a period of less than twelve months from the date of the divorce, supplemented by an annuity, the capital payments do not benefit from the tax reduction provided for in paragraph I of the same article.
Nor can these capital payments be deducted from taxable income on the basis of 2° of paragraph II of Article 156 of the same Code, applicable only when the payments are made over a period of more than 12 months, whether or not supplemented by an annuity.
There is therefore a difference in treatment that infringes the principle of equality before the tax authorities since all payments made in execution of a compensatory benefit benefit benefit from a tax advantage, except for capital payments made over a period of less than 12 months when they are accompanied by an annuity.
Hence the referral to the Constitutional Council.
The Constitutional Council censors the provisions of paragraph II of article 199 octodecies in its wording resulting from law 2004-439 of May 26, 2004, but does not repeal them.
In its decision of January 31, 2020, the Constitutional Council considers that "paragraph II of article 199 octodecies of the CGI in its wording resulting from law 2004-439 of May 26, 2004 on divorce disregards the principle of equality before public charges and must therefore, without the need to examine the other grievance, be declared contrary to the Constitution".
It specifies, as to the effects of the declaration of unconstitutionality, that "the provisions declared contrary to the Constitution, in their contested wording resulting from the law of 26 May 2004, are no longer in force".
In other words, the Constitutional Council does not abrogate provisions that it has declared contrary to the Constitution but which, in the wording in which it examined them, are no longer in force on the date of its decision.
In fact, paragraph I of Article 199 octodecies of the CGI has been modified by Article 50, V of Law 2016-1547 of November 18, 2016 on the modernization of justice in the 21st century, which came into force on January 1, 2017.
However, while the wording of paragraph II of the same article has not been modified, this paragraph refers to the provisions of paragraph I.
The QPC referred to the Constitutional Council by the Council of State dated 15 November 2019 (CE QPC 15-11-2019 No. 434325), paragraph II examined by the Constitutional Council was therefore no longer in force .
The declaration of unconstitutionality therefore does not apply to the current provisions of paragraph II, according to which mixed compensatory benefits are still excluded from the tax reduction referred to in paragraph I.
However, it may be invoked for proceedings already brought before the court and not yet definitively judged, as well as in the event of the presentation of claims made after the decision of the Constitutional Council of January 31, 2020, provided that they are presented within the general time limit for filing a claim provided for in article R 196-1 of the LPF.
Taxpayers who have had the provisions declared unconstitutional applied to them can therefore invoke censorship for all taxes for which a contentious appeal can still be made (i.e. income tax for the years 2017, 2018 and 2019).
For mixed compensatory benefits resulting from a judgment rendered as of January 1, 2017, it will be necessary to wait for litigation and a new PQP.