Commitment to resell:
abuse of law in the line of fire

Article 1115 of the French Tax Code allows any person subject to VAT within the meaning of article 256 A, and not only property dealers in the traditional sense, to benefit from the reduced registration-duty rate of 0.715% instead of 6.32% in most departments, an increased rate applicable to deeds executed and agreements concluded until 31 March 2028 unless extended (5.81% in the eleven departments that remained at 4.50%; an additional 0.6% tax applies in the Paris region to offices, shops and storage premises), subject to resale within 5 years of the acquisition. Missing the deadline triggers forfeiture: recovery of the unpaid duties, payable within one month of the breach of the commitment, increased by the late-payment interest of article 1727 of the French Tax Code (0.20% per month, that is 2.40% per year), in accordance with article 1840 G ter, I of the French Tax Code. Where abuse of law within the meaning of article L. 64 of the Tax Procedure Code is established, the surcharge of 40% or 80% under paragraph b of article 1729 of the French Tax Code is added; under article L. 64 A, only the ordinary-law penalties may be applied, where justified.

Three grounds coexist: (1) ordinary forfeiture where the 5-year deadline is missed (recovery of the duties plus the late-payment interest of art. 1727, that is 2.40% per year, on the basis of art. 1840 G ter, I of the French Tax Code); (2) abuse of law within the meaning of L.64 of the Tax Procedure Code (exclusively tax-driven purpose, 80% surcharge under French Tax Code art. 1729 b, reduced to 40% where the taxpayer did not take the main initiative or is not the main beneficiary) or of L.64 A of the Tax Procedure Code (mainly tax-driven purpose: the act is unenforceable against the authorities, without the automatic surcharge of paragraph b of article 1729, but with ordinary-law penalties of 40% or 80% possible where the tax authorities justify them); (3) the absence of the conditions of article 1115, in particular the status of a taxable person acting as such on the date of the acquisition, which deprives the transaction of the favourable regime without any need to resort to abuse of law. The characterisation of a hidden (undeclared) activity is governed by a separate regime with its own effects (surcharge under article 1728 of the French Tax Code, extended limitation period for reassessment): see our dedicated analysis of the hidden activity of property dealers.

No. Article 1115 of the French Tax Code applies to any person subject to VAT within the meaning of article 256 A, with no condition of registration or profession (BOI-ENR-DMTOI-10-50, § 20). The condition turns on the status of a taxable person, acting as such, on the date of the acquisition. RCS registration, commercial accounts, track record and recurrence of transactions, human and material resources remain useful items of evidence of that status, without being statutory conditions: a private individual who is not a taxable person does not come within the regime, even if registered with the RCS.

Forfeiture is automatic and results from the mere fact of missing the deadline (BOI-ENR-DMTOI-10-50, 29/04/2014). The unpaid duties become payable within one month of the breach of the commitment, increased by the late-payment interest of article 1727 of the French Tax Code (0.20% per month, that is 2.40% per year), on the basis of paragraph I of article 1840 G ter of the French Tax Code. The interest runs from the first day of the month following the expiry of the statutory period for submitting the deed of acquisition to the registration formality, that is approximately five years of interest (approximately 12%) where forfeiture occurs at the end of the period. Only force majeure, understood as a circumstance displaying the characteristics of externality and unforeseeability which placed the purchaser in an insurmountable impossibility of selling throughout the period of its commitment (BOI-ENR-DMTOI-10-50, § 70), can defeat forfeiture: an ordinary commercial difficulty is not enough. The law provides for no extension of the five-year period, except for properties located in a concerted development zone (ZAC) and acquired by the person in charge of developing or equipping the zone, for which a renewable one-year extension may be granted by the departmental or regional director of public finances, on an application made no later than one month after the expiry of the period (French Tax Code, art. 1594-0 G, A, IV bis; French Tax Code, Annex III, art. 266 bis). Outside that case, the only way out before the deadline is the substitution of a commitment to build (French Tax Code, art. 1594-0 G, A, II). See our dedicated analysis of the extension.

It is inadvisable. Prolonged personal enjoyment of the property during the period contradicts the intention to resell and gives the tax authorities an argument to recharacterise the transaction as a private wealth acquisition. Short-term letting geared towards resale (viewings, active mandates) remains compatible; personal enjoyment by the dealer or its shareholders does not.

Three levers: (1) structuring, with a dedicated vehicle (SARL, SAS) whose corporate purpose is property dealing, commercial accounts and RCS registration; (2) drafting, with deed clauses setting out the commitment, the resale plan and the economic rationale; (3) documentation, keeping the evidence of the intention (mandates, business plan, marketing steps, quotes for works geared towards resale). The firm offers a tailored securing kit.

Act quickly. The taxpayer has 30 days to respond, extendable by 30 days on request. Referral to the abuse-of-law committee (CADF) is available as of right to the taxpayer and provides an independent opinion, which is useful where the file shows elements of economic coherence. The application must be made within thirty days of the tax authorities' reply to your observations (BOI-CF-IOR-30-30, § 170). At the litigation stage, the analysis rests on the quality of the evidentiary file built from the acquisition onwards.