(Bloomberg) -- Vitaly Malkin can’t prove he owns a luxury ski chalet in France’s Courchevel region. But the Russian businessman still has to pay the taxes on it.
After a four-year court battle, Malkin, a former Russian senator, was ordered by a French court earlier this month to pay a $1.7 million tax bill on the chalet, which has been d at 31.7 million euros ($35 million).
The case is one of several related to a 3% French tax on the of a property designed to crack down on the use of shell companies to avoid taxes on assets in the country. Malkin had used a Luxembourg vehicle to buy the chalet.
This levy was designed to prevent the wealthy from getting out of paying France’s traditional wealth tax, according to Arnaud Tailfer, a Paris lawyer. A little-known tactic by tax officials, however, has property owners scrambling to prove that they own the land after all to avoid the 3% tax, which is higher and has no deductions.
But that’s been no easy feat. The judges ruled that Malkin failed to formally prove he owned the firm that controlled the French structure that acquired the property.
“Even though everyone knows the owner is who he says he is, tax officials consider that proof of ownership isn’t provided under French rules,” Tailfer said. “As the shareholding of limited liability companies doesn’t have to be kept up to date in Luxembourg or in places such as Guernsey, it’s exceedingly difficult to prove ownership.”
In another high-profile case, Russian billionaire Iskandar Makhmudov was forced in January to pay 1.56 million euros in taxes linked to the Villa l’Ecossaise on the Côte d’Azur.
Blaise-Philippe Chaumont, a lawyer for Malkin, declined to comment as did Makhmudov’s attorney, Eric Hebras.
Dual Citizenship
Malkin, 67, first made his fortune as the co-founder of Rossiyskiy Credit Bank in the early 90s, briefly one of Russia’s biggest. He became a Russian senator in 2004 but resigned in March 2013 after being accused of holding dual citizenship and foreign properties, while saying he wasn’t in violation of parliamentary rules.
Malkin re-emerged more recently in the public eye as one of the victims of his banker Patrice Lescaudron, a convicted fraudster who was formerly at Credit Suisse Group AG.
Since 2010, the French tax administration has had more authority to collect large sums from owners of properties in the Alps or the Côte d’Azur, said Tailfer. That’s when the goverment scored a big win at the top court that significantly raised the burden for proving ownership of properties purchased through companies based outside of France.
In the Malkin case, Crystal Vision Holdings declared for 2012 and 2013 that he was the owner of all of the Luxembourg-based company’s shares. In response, French tax officials asked him to prove ownership to qualify for an exemption from the 3% levy on the ski chalet’s .
Malkin provided rafts of documents, but none of them convinced the tax officials or the court of appeals in Aix-en-Provence, which ruled on June 2. He has to pay about 77,000 euros in fines as well as 510,000 euros in back taxes for 2012 and 951,000 euros for 2013 as the property nearly doubled due to extensive refurbishing.
Credit Suisse Loan
The appeals court dismissed the fact demolition and building permits were issued by the town to Malkin. “One doesn’t have to be the owner to apply for and obtain a planning permit,” the judges said.
The court was also unmoved by the fact that Malkin and his wife were guarantors for a Credit Suisse loan provided in 2013 to Immoluxe Courchevel, the French entity that bought the chalet. The judges said it didn’t prove they were shareholders of the Luxembourg company that owned Immoluxe.
Out of all the evidence provided, the item that got the closest to winning over the judges was another Immoluxe loan to fund the chalet’s acquisition that specified Malkin was the owner of that French structure. But the judges said the contract was private and criticized Malkin for failing to officially register the document.
While Makhmudov -- the biggest shareholder of Russia’s second-largest copper producer -- went through a similar ordeal, some choose not to reveal the identity of the owner of the luxury property and agree to pay the 3% tax. But they might still pick a fight with authorities over the valuation of the real estate.
The owner of villa Piqu’areste on the Cap d’Antibes, spanning 54,000 square feet, argued it was worth no more than 17.4 million euros in 2010. Appellate judges disagreed and sided with tax officials’ 25 million-euro assessment, highlighting its panoramic view of the Mediterranean, 110-square meter pool and nightclub in the basement.
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