International restructurings and the transfer of the family business

Yes, subject to conditions. Article 787 B, i, of the French Tax Code allows the continuity of the Dutreil pact where the transferred shares, still subject to the retention undertaking, are contributed to a holding company. Maintaining the 75% exemption requires the receiving holding company to satisfy precise conditions: assets mainly composed of the shareholding subject to the undertaking, ownership and control by the persons bound by the undertaking, and retention by the holding company of the shares received for the remaining term. Compliance with the management function and the thresholds also remains required. A poorly calibrated contribution may cause a breach of the undertaking and the loss of the benefit, which is why the structure must be analysed beforehand.

Article 150-0 B ter of the French Tax Code provides for a deferral of taxation of the capital gain realised on the contribution of shares to a company subject to corporate income tax and controlled by the contributor. The gain is assessed but its taxation is deferred as long as certain events do not occur. If the receiving company disposes of the contributed shares within three years, the deferral is in principle maintained provided it reinvests a significant portion of the disposal proceeds in an economic activity. The disposal of the shares received in consideration for the contribution, a gift in certain cases, or a transfer of tax residence outside France may terminate the deferral. The deferral is frequently combined with a reorganisation or a transfer; see our page on the contribution-disposal mechanism (CGI 150-0 B ter).

The preferential merger regime, provided for in article 210 A of the French Tax Code, allows a merger, a demerger or a partial contribution of assets to be carried out without immediate taxation of the unrealised gains on the transferred assets. In return, the receiving company assumes the undertakings of the absorbed company: it records the assets at their original value, adds back certain gains where applicable, and takes over the provisions and depreciation. Taxation is not eliminated but deferred, the transaction being treated as a continuation of the business. This regime facilitates group reorganisations without immediate tax friction.

Yes, within the European Union. Directive 2009/133/EC, known as the Merger Directive, harmonises the tax regime of mergers, demergers, contributions of assets and exchanges of shares between companies of different Member States. It requires a deferral of the taxation of capital gains so that a cross-border transaction is not penalised for tax purposes compared with a purely domestic transaction. French law transposes these principles, in particular in article 210 A of the French Tax Code and in the provisions relating to exchanges of shares. The benefit of the regime nonetheless requires that the transaction does not have tax fraud or tax evasion as its principal objective, an anti-abuse clause allowing the tax authorities to deny its application.

Tax residence determines the scope of taxation (worldwide or territorial) and the interaction with tax treaties. For a company, the place of effective management may fix its treaty residence and therefore the State entitled to tax its profits. A transfer of registered office or of management in the course of a restructuring may change the residence, trigger exit taxation, or terminate certain tax deferrals. A cross-border holding company must be structured with regard to its substance and its actual place of management, failing which its residence could be recharacterised. See our page on non-resident taxation.

A permanent establishment is a fixed place of business through which an enterprise carries on all or part of its activity in another State. Its characterisation, defined by tax treaties on the OECD model, gives the State of location the right to tax the profits attributable to it. In an international restructuring, the location of operational activities, the presence of staff or dependent agents, and the allocation of functions between the holding company and its subsidiaries may give rise to a permanent establishment, with consequences for the group's tax burden. See our page on permanent establishment and corporate income tax.

The reconciliation rests on a combined reading of the regimes. The aim is to reorganise the group (contribution to a holding company, merger, cross-border holding company) while preserving, on the one hand, the continuity of the Dutreil pact (French Tax Code, article 787 B, i) where a retention undertaking is running and, on the other hand, the tax deferrals opened by contributions (French Tax Code, article 150-0 B ter) and mergers (French Tax Code, article 210 A). The sequence of the transactions, the asset composition of the holding companies, the timetable of the undertakings and the location of the activities must be ordered so as to avoid any terminating event. The firm defines this sequence upstream, taking into account the residence and permanent-establishment constraints specific to the international nature of the matter.