The contribution-disposal scheme and the tax deferral of article 150-0 B ter
You contributed your shares to a holding company before selling them, placing the capital gain under a tax deferral? The mechanism of article 150-0 B ter is legitimate, but tightly regulated: a rapid sale of the contributed shares requires an eligible reinvestment within the meaning of article 150-0 B ter. Failing that, the deferral ends; abuse of tax law, for its part, further requires an artificial arrangement or one devoid of substance. The firm secures the transaction and defends against reassessments.
- Mechanism
- Tax deferral of the capital gain on a contribution to a controlled company (French Tax Code art. 150-0 B ter)
- Disposal
- Sale of the contributed shares within 3 years: the deferral ends, unless an eligible reinvestment is made
- Reinvestment
- Unless at least 70% of the proceeds are reinvested in eligible assets within 3 years, held for 5 years
- Risk
- Loss of the deferral and, where the arrangement is artificial, abuse of tax law (LPF art. L. 64)
- Profile
- Selling executives, family offices, private equity
The tax deferral in a contribution-disposal transaction
The contribution-disposal scheme consists of contributing one's shares to a company one controls before selling them. The capital gain arising on the contribution then benefits from an automatic tax deferral (French Tax Code art. 150-0 B ter): it is not taxed immediately, but frozen until a future event (in particular, the sale of the shares received in exchange).
This scheme is entirely lawful: it makes it possible to organise a transfer or a reinvestment without immediate tax friction. Its legitimacy, however, depends on what becomes of the proceeds from the holding company's sale of the contributed shares.
The reinvestment condition
Whether the deferral is maintained depends on the timetable and on the use of the proceeds:
- If the holding company retains the contributed shares for at least 3 years, the deferral is maintained;
- If it sells them within 3 years, the deferral ends, unless at least 70% of the proceeds of the sale are committed to an eligible reinvestment within the meaning of article 150-0 B ter;
- That reinvestment must take place within a 3-year period and relate to eligible assets (acquisition of a business, subscription to share capital, financing of operating assets), to the exclusion of a mere financial investment;
- The assets so reinvested must then be held for at least 5 years.
The economic nature of the reinvestment and compliance with the threshold and time limits are the first points checked by the tax authorities. An insufficient or late redeployment causes the deferral to lapse and triggers taxation of the capital gain.
When the tax authorities invoke abuse of law
Beyond the mechanics of the deferral, the tax authorities may invoke abuse of tax law (LPF art. L. 64) where the interposition of the holding company is purely artificial and has no purpose other than avoiding tax: lack of substance, cash in reality appropriated by the executive, a reinvestment that is merely a facade. A finding of abuse then carries penalty surcharges of 40% or 80% (French Tax Code art. 1729), in addition to the reassessed tax. The dividing line turns on the economic reality of the scheme and the intention pursued.
Securing and defending
Upstream, the firm structures the transaction and documents the reinvestment (eligibility, 70% threshold, 3-year period, 5-year holding, substance of the holding company). In the event of a tax audit, the defence focuses on compliance with the conditions of the deferral, the economic nature of the redeployment, and challenging the characterisation of abuse of tax law and the surcharges, the burden of proof for which lies with the tax authorities. The firm combines the defence on the merits with, where appropriate, an advance tax ruling to secure future transactions.
Contribution-disposal 150-0 B ter: your questions
Is the contribution-disposal scheme lawful?
Yes. Contributing your shares to a controlled holding company before a sale, with the capital gain under deferral (French Tax Code art. 150-0 B ter), is a lawful scheme. Its legitimacy depends on compliance with the holding or reinvestment conditions.
What share of the proceeds must be reinvested?
Where the holding company sells the contributed shares within 3 years, the deferral is maintained only if at least 70% of the sale proceeds are committed to an eligible reinvestment within the meaning of article 150-0 B ter, within a 3-year period, and the reinvested assets must then be held for at least 5 years.
Which reinvestments are eligible?
Uses of an economic nature: acquisition of a business, subscription to the share capital of operating companies, financing of operating assets. A mere financial investment is not eligible.
When is abuse of law established?
Where the interposition of the holding company is artificial and aims solely at avoiding tax, with no substance or genuine reinvestment, the executive in practice appropriating the cash. The surcharge may then reach 40% or 80%.
Can the transaction be secured in advance?
Yes, by rigorously documenting the substance of the holding company and the reinvestment plan and, where appropriate, through an advance tax ruling. Careful preparation is the best protection against a reassessment.
A 150-0 B ter deferral being challenged?
An initial confidential discussion to verify the conditions of the deferral, secure the reinvestment and rule out abuse of tax law.
This page presents the contribution-disposal regime for information purposes; every case calls for a specific analysis. References to the French Tax Code and the Book of Tax Procedures as in force at the date of writing.