Current Tax Developments - Fictitious Tax Credits

A company purchased mutual fund shares in conditions which led the French Tax Administration to consider the tax credit related to such shares to be fictitious, and therefore to fall within the scope of application of the abuse of law procedure provided for by French tax law.

In a 1983 instruction (superseded in 1989), French tax authorities accepted that unitary tax credits attached to dividends paid by French mutual funds should be computed according to the number of the fund's shares existing at the end of its fiscal year. This unitary tax credit was used to determine the tax credit attached to the fund's distribution, even if new shareholders entered the fund at a time between the end of the fiscal year and the distribution. Shareholders who subscribed to the mutual fund a few days prior to distribution and who sold their shares a few days after distribution could therefore benefit from both the dividend and the tax credit attached to the share. Although neutral from a