[COVID-19] Containment of activities or assets exposed to financial or operational risks

Updated information, as of the date of publication of this article

Certain assets or activities will certainly be exposed to significant financial and/or operational risks as a result of the Covid-19 crisis. In order to avoid any contamination with other activities or assets, several measures of containment (not to say confinement) of the assets at risk or to be protected can be considered:

• – Sale of assets/activities to a dedicated entity : this solution, which is fairly simple, has several drawbacks, including (a) the absence of an automatic and correlative tranfer of the liabilities attached to the sold assets, (b) the triggering, where applicable, of unrealised capital gains existing on the sold items (taxed at the standard corporate income tax rate), (c) the possible change in the activity of the selling company with the resulting loss of its tax losses, (d) the application of high registration fees (up to 5% in the case of sale of business assets, 5.8% for buildings), etc., (e) the application of high registration fees (up to 5% in the case of sale of business assets, 5.8% for buildings), etc., (f) the application of high registration fees (up to 5% in the case of sale of business assets, 5.8% for buildings). ;

• – Partial contribution of assets to a dedicated entity: the contribution of a complete and autonomous branch of activity to a new entity (spin-off) allows the transfer of all the related liabilities (contribution subject to the legal regime for spin-offs), tax neutrality, whether in terms of corporate income tax (Article 210 B of the French General Tax Code) or registration fees (Article 810 of the French General Tax Code), under certain conditions. The contribution may even be accompanied by the transfer of tax losses generated by the contributed activity;

• – Transfer of assets/activities in trust: a trust is an arrangement whereby certain assets (and liabilities, if any) are transferred by a settlor to a trust estate to be held, managed or administered for the benefit of one or more beneficiaries (including the settlor itself, if any, and most often a creditor so secured). The trust estate constitutes a watertight legal envelope that survives the vicissitudes of the constituting company (including the test of receivership proceedings), while the latter may continue to operate the assets through a disposal agreement concluded with the trustee. From a tax point of view, the establishment of the trust and its termination may be placed under a tax-neutral regime (art. 238 quater B of the CGI) inspired by the merger regime.