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Data Protection and Privacy: biometrics and smartphone, recommendations of the CNIL

In a publication dated March 8, 2017, the CNIL clarified the hypotheses where the use of a biometric device integrated into a smartphone required the authorization of the CNIL. On the basis of the domestic exemption provided for in Article 2 of the Data Protection Act, the CNIL stated that when an organization uses a biometric device integrated in a smartphone, no prior authorization is required so long as:

  • The user uses this device privately via his/her own biometric data;
  • The user only decides to use biometric authentication, which implies that the application provider has to propose an alternative authentication mode;
  • The biometric template is stored in the device in a partitioned environment and is not accessible or transmitted to the outside;
  • The biometric template is stored in the device in an encrypted manner using a cryptographic algorithm and key management according to the state of the art;
  • When checking access, only a token or data indicating the success or failure of the biometric recognition presented is transmitted.

However, when the biometric recognition device operates in interaction with remote servers controlled by a third party organization, the said organization must apply for authorization from the CNIL.


The 3% dividend contribution on distributed income

In two judgments rendered on March 29, 2017, the Conseil d’Etat expressed its opinion on the 3% contribution levied on dividends. In the first judgment, the Conseil d’Etat considered that the exemption of this contribution for distributions within a tax group constituted an unjustified difference in treatment. In the second judgment, it held that the exemption from which SMEs benefit constituted a perfectly justifiable difference in treatment.

The exemption for distributions within a tax group is incompatible with the European Convention on Human Rights.

In its version prior to the Finance Amendment Law of 29 December 2016, the General Tax Code provided that amounts distributed between companies within a tax group were exempt from the 3% contribution on dividends.

On September 30, 2016, the Conseil constitutionnel declared the exemption unconstitutional on the grounds that it disregarded the principles of equality before the law and before public offices. However, it postponed the repeal of this exemption until January 1, 2017 (cf. our Tax Flash of October 2016).

In a judgment dated 29 March 2017, the Conseil d’Etat also criticized this legislative provision, but this time in the context of the European Convention on Human Rights. The exemption in question created an unjustified difference in treatment depending on whether or not the companies at least 95% of the capital of which was owned by a parent company were part of an integrated group.

Drawing conclusions from the discriminatory nature of this exemption, the Conseil d’Etat annulled the administrative doctrine which commented on this exemption.

Unlike the decision of the Conseil constitutionnel, this decision of the Conseil d’Etat has retroactive effect. It therefore also concerns distributions of dividends made prior to January 1, 2017.

However, in the context of this remedy on ultra vires grounds, the Conseil d’Etat refused to order the tax authorities to refund the 3% tax paid by the taxpayer.

On the other hand, the exemption for SMEs is not contrary to the Constitution.

In a judgment of the same date, the Conseil d’Etat refused to transmit to the Conseil constitutionnel a priority question of constitutionality (“PQC”) aimed at the exemption of the 3% contribution provided for SMEs. The Conseil d’Etat has deemed that such a PQC was not serious in nature since the exemption in favor of SMEs infringes neither the principle of equality before the law nor the principle of equality before public offices. Indeed, although this specific exemption constitutes a difference in treatment between SMEs and large corporations, this difference is justified by a difference in the objective situation between SMEs and large corporations, given the “difficulties encountered by micro-small and mediumsized companies to access capital financing ».

Signing of the OECD Multilateral Tax Convention

99 states have signed a draft multilateral tax convention as part of the OECD project to combat tax evasion (the BEPS project). This Convention is a source of complexity, since it will apply in parallel with existing bilateral conventions, but also because it offers the possibility for a signatory State not to apply certain provisions.

Under the aegis of the OECD, 99 states, including France, participated in the elaboration of a multilateral convention which was first signed on June 7, 2017. The purpose of this convention is to implement a number of measures taken within the framework of the Base Erosion and Profits Shifting (BEPS) project.

Genesis of the project

The OECD’s BEPS work has led to the adoption of measures which must now be reflected in positive law. Considering that the present system encompasses more than 3,000 bilateral tax treaties between States, the amendment of each of these conventions was too burdensome. It was therefore decided to carry out the synchronized updating of all these conventions by means of a multilateral instrument.

Application of the Multilateral Convention

The Convention will apply in parallel with existing bilateral conventions, with parties having the option of publishing consolidated versions.

The Convention deals with hybrid devices (Part II), misuse of tax treaties (Part III), measures to avoid the classification of a permanent establishment (Part IV), improving dispute settlement (Part V) and arbitration (Part VI).

In order to take account of the specific features of the parties and the bilateral conventions, a certain amount of flexibility has been introduced in regard to the Convention implementation. Thus, the parties will have the opportunity to notify the bilateral conventions covered by the multilateral convention, in other words those that will be amended by the multilateral instrument.

A reserve mechanism has also been put in place. Thus, a party may choose not to apply certain provisions of an article. As regards the articles reflecting the minimum standards of the BEPS project, the parties may only derogate from them in strictly defined cases, for example where provisions of the bilateral convention already satisfactorily resolve the situation.

Finally, since certain provisions of the Convention do not exist in domestic law, the French provisions should be amended to allow the Convention to apply, by virtue of the principle of subsidiarity. Indeed, the entry into force of an international tax convention, even if ratified, shall not serve as a basis for the imposition of taxation if the principle of taxation is not provided for in domestic law.

A source of complexity for taxpayers

The signing of the multilateral convention marks the entry into a new international tax order in which global inter-State negotiation is likely to take precedence over bilateral negotiation.

The objectives are commendable and the process meets the requirements of modernizing the international legislative process in tax matters. However, for many years, taxpayers will have to adopt a new grid of reading international taxation standards. This will undoubtedly be a source of complexity and potentially a source of litigation.


A demerger does not involve the automatic transfer of a first-demand guarantee


Prior to a demerger, a company had benefitted from a first-demand guarantee issued by a bank (the « Guarantee »). The demerger resulted in the transfer of the hotel business from the company benefitting from the Guarantee to a new company. The new company in question had called the Guarantee.

The question was whether the Guarantee from which the previous company had benefitted was automatically transmitted to the new company without having to mention the existence of such Guarantee in the demerger agreement, nor having to obtain the express consent of the bank on such transfer.


The Court of Appeal had held that the universal transfer of assets resulting from a merger or demerger was not incompatible with the inherent personal nature of the Guarantee. Accordingly, after emphasizing that the beneficiary of the Guarantee had been through a demerger, whereby the business had been transferred to the new company, the Court of Appeal ruled that the Guarantee had been transferred without the need to mention the existence of the Guarantee in the demerger agreement, nor the need to obtain the express consent of the bank to such transfer.

The Cour de Cassation (Supreme Court) overruled the decision of the Court of Appeal on the ground that « unless otherwise agreed, an autonomous guarantee, which does not follow the secured transaction, shall not be transmitted in the event of a demerger of the company benefitting from the said guarantee. »

This judgment calls for special vigilance in the drafting of merger and de-merger agreements.