Decree No. 5148 dated 05/07/2019 (hereinafter) recalled the scope of the permitted and prohibited activities of Lebanese offshore companies as exhaustively listed in articles 1 and 2 of the Decree-Law No. 46 dated 24/06/1983 amended by the Law No. 19 dated 05/09/2008. Indeed, the said Decree emphasizes on the fact that offshore companies cannot undertake banking operations or operations that financial institutions undertake as well as insurance operations of any kind whatsoever; activities prohibited by the provisions of article 2 of the Decree-law No. 46 dated 24/06/1983 amended by the Law No. 19 dated 05/09/2008.
It should be noted in this regard, that this Decree cannot be separated from two recent responses from the Direction of Revenues to questions submitted to the latter (MR No.476/ S2 dated 08/04/2019 and No.547/S2 dated 20/04/2019) – on the one hand, regarding the possibility for the offshore company to borrow from its shareholders and/or its Chairman-general director and, on the other hand, regarding the possibility for the company to invest its own funds in financial products, investment funds, future contracts and in other structured or derivative products; without regard to any transaction with or for the benefit of third parties in respect of such investments.However, the tax administration, supported by the Council of ministers by virtue of the aforementioned Decree, undertakes a restrictive interpretation of the law. As such, it is to be raised that “regardless of the fact that it concerns a factual situation, it is for the authority to correctly apply to that situation the rule of law which serves as the basis for its acts and to interpret it without subtracting or adding anything that would be contrary to the law. Consequently, are in particular tainted by error of law, decisions based on grounds not established by law, those which, more widely, demonstrate an incorrect interpretation of the rule and those that distort the powers conferred to the authority…Requiring a condition that is not provided by the Law and that is contrary to the applicable rule, whether to the law or to a regulation, is a frequent case of an error of Law”. (Administrative Jurisclass, fasc. 1152, n° 99 et 100). In other words, this means that offshore companies do not manage money and investments for the account and for the benefit of third parties.Thus, and in the perspective of the application to the letter of the two ministerial responses mentioned here above -which are likely to create a great legal instability at the level of investments and which mark a limit to the field of activities of the offshore companies listed in the first article of the Decree-law No. 46 dated 24/06/1983 amended by Law No. 19 dated 05/09/2008-, it follows that offshore companies will no longer be able to invest their own funds and assets, which does not seem to be the real intention of the legislator at the beginning or even during the modification of the Law in 2008 and the extension of the field of activities. It should be noted that these two aforementioned responses are only a reflection of an administrative practice and do not constitute, in no case, administrative regulations that are binding, mandatory or enforceable for taxpayers who, in the event of recovery, will still be able to claim the right of appeal and opposition conferred by the laws in force.