Relaxing the favourable regime for partial contributions of assets

The second amending finance bill for 2017, which was approved in December 2017, significantly changed the favourable regime for restructuring transactions. Below we will examine two important measures: 

Changes to the partial contribution of assets regime

Before the law came into effect, in order to be able to benefit from the favourable regime provided for by article 210 B of the General Tax Code and related to partial contribution of assets, the contributing company had to:

-hold the shares received in exchange for the contribution for a period of three years

-subsequently calculate the capital gains on the transfer corresponding to these shares on the basis of the tax value allocated to the contributed assets in its own accounts.

Beginning on 1 January 2018, the condition related to holding the shares for a period of three years is abolished where the contribution relates to an entire business or equivalent elements.

However, the obligation for the contributing company to calculate the capital gains on the share transfer on the basis of the tax value allocated to the transferred assets in its own accounts is retained.

In practice, in the event of a transfer of shares received in exchange for the contribution during a period of two years following the contribution, the capital gains would not benefit from the 88% exemption applicable to equity shares, which should encourage contributing companies to keep their shares for at least this period of two years.  It would however be useful to follow the instructions of the tax authorities on this matter to ensure that the two-year deadline starts on the date of contribution.

Abolition of prior approval for cross-border restructuring 

Cross-border transactions could previously benefit from the special merger regime in the same way that transactions between French companies did.  However, prior approval had to be obtained for these transactions from the tax authorities.

This mechanism was deemed to be contrary to European Union law, in particular to the principle of freedom of establishment (CJUE 8 March 2017 aff. 14/16).

Consequently, legislators have abolished the approval procedure for cross-border transactions.  They have, however, introduced a specific obligation to declare and an obligation to assign the contributed assets to a permanent establishment of the foreign legal entity located in France.

Thus, the above declaration must be made electronically within the same timeframe as that for filing the financial statements for the year during which the transaction took place.  This declaration must enable the tax authorities to assess the grounds for and consequences of this transaction.

Lastly, the assets contributed by a French company to a foreign company must be assigned to a French permanent establishment of the foreign company in order for France to be able to maintain its right to tax the capital gains resulting from the transfer.