Article 1115 of the French Tax Code allows acquisitions made by a VAT-registered person carrying on the activity of property dealer to benefit from the reduced registration-duty rate of 0.715% (instead of 5.80% in mainland France, 6.40% in the Paris region), subject to a commitment to resell within 5 years. This advantage mechanically attracts scrutiny from the tax authorities on the ground of abuse of law (Tax Procedure Code art. L.64 and L.64 A) where the status of property dealer, the genuineness of the intention to resell or the economic coherence of the transaction appears fragile. The analytical grid applied by the tax authorities and the courts rests on several sets of indicators that every operator must master in order to secure its acquisitions.
Article 1115 of the French Tax Code allows VAT-registered persons carrying on the activity of property dealer to benefit from the reduced registration-duty rate of 0.715% (instead of 5.80% in mainland France and 6.40% in the Paris region), subject to a commitment to resell within 5 years. Forfeiture is incurred by the mere fact of missing the deadline (BOI-ENR-DMTOI-10-50, 29/04/2014), save in cases of force majeure meeting the cumulative conditions of externality and unforeseeability. Beyond the recovery of the duties, article 1840 G ter, I of the French Tax Code requires payment of the duties within one month of the breach of the commitment, increased by the late-payment interest of article 1727 (0.20% per month, that is 2.40% per year since the 2018 Finance Act, a rate made permanent by the 2021 Finance Act).
Where the transaction appears artificial, the tax authorities may deploy the abuse of law procedure: article L.64 of the Tax Procedure Code for acts with an exclusively tax-driven purpose, or article L.64 A of the Tax Procedure Code for acts with a mainly tax-driven purpose (introduced by Law no. 2018-1317 of 28 December 2018, art. 109, applicable to acts carried out from 1 January 2020, with notifications from 1 January 2021). Under L.64, the surcharge provided by paragraph b of article 1729 of the French Tax Code is 80%, reduced to 40% where the taxpayer neither took the main initiative nor is the main beneficiary of the acts constituting the abuse. The L.64 A procedure, by contrast, does not carry any specific automatic surcharge: the act is unenforceable against the tax authorities but attracts no financial penalty of its own.
The firm secures transactions upstream (structuring, drafting of the deeds, documentation of the intention) and defends taxpayers downstream against proposed reassessments and before the abuse-of-law committee.
The analysis conducted by the tax authorities and the courts is never confined to a single criterion. It is the accumulation of several sets of indicators that characterises abuse of law.
The purchaser must be able to demonstrate a habitual activity as a property dealer: registration with the Trade and Companies Register (RCS), track record, multiplicity of transactions, an appropriate structure. A one-off transaction carried out by an individual or by a company with no track record sends a strong risk signal.
The intention must be documented from the acquisition onwards: business plan, prompt marketing, agency mandates, renovation work geared towards resale. Personal enjoyment of the property or long-term letting during the 5-year period are contrary signals.
The transaction must display the economic rationale of a dealer: a foreseeable margin, value added through works, market arbitrage. A near-immediate resale without added value at a price close to the acquisition price may be recharacterised as a mere private wealth transaction.
Since the 2018 reform, abuse of law can be established for transactions with a mainly tax-driven purpose (Tax Procedure Code art. L.64 A), no longer only an exclusively tax-driven one. The taxpayer must be able to demonstrate a sufficient economic rationale beyond the tax advantage.
The interplay with any commitment to build (French Tax Code art. 1594-0 G A) or with a parallel letting activity must be justified. The tax authorities penalise opportunistic switches of commitment during the period without objective justification.
The firm acts across the entire cycle: pre-acquisition analysis (characterisation of the transaction, choice of the acquisition vehicle, drafting of the clauses in the preliminary agreement and the notarial deed), documentation of the intention (building an evidentiary file from closing onwards), litigation (response to a proposed reassessment, hierarchical appeal, referral to the abuse-of-law committee, proceedings before the administrative court and then the Conseil d'État).
The firm's experience makes it possible to anticipate the lines of attack of the tax authorities and to structure transactions so that they withstand the most frequent recharacterisations.
Article 1115 of the French Tax Code allows a VAT-registered person carrying on the activity of property dealer to benefit from the reduced registration-duty rate of 0.715% instead of 5.80% in mainland France (or 6.40% in the Paris region), 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 is established, a surcharge of 40% or 80% is added (French Tax Code art. 1729 b).
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, with no specific automatic surcharge but with the act being unenforceable against the authorities); (3) recharacterisation of the activity (hidden (undeclared) activity, sham, related transactions: see our dedicated analysis of the hidden activity of property dealers).
Registration with the RCS as a property dealer is not formally required by article 1115, but it constitutes a major item of evidence of the status of a VAT-registered person carrying on that activity. A purchaser without RCS registration and without any track record is exposed to having its characterisation challenged. The administrative doctrine and the case law take into account a set of indicators: RCS, commercial accounts, multiplicity of transactions, human and material resources.
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. Only force majeure, meeting the cumulative conditions of externality, unforeseeability and irresistibility, can defeat forfeiture; an ordinary commercial difficulty is not enough. An extension may be applied for, but it is not available as of right: it lies within the discretion of the tax authorities (save the special case of properties located in a concerted development zone (ZAC), for which a renewable one-year extension may be granted by the DDFIP). 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. At the litigation stage, the analysis rests on the quality of the evidentiary file built from the acquisition onwards.
Topics frequently connected with the commitment to resell.
Overview: reselling, building, extensions, takeover. All property-dealer topics.
Voir la page Commitment to resellThe period applicable to acquisitions intended for plain letting: conditions and pitfalls.
Voir la page Commitment to resellProcedure, admissible grounds, administrative doctrine.
Voir la page LitigationResponse to a proposed reassessment, hierarchical appeal, litigation.
Voir la pageA confidential initial discussion to structure your transaction upstream, or to defend your interests against a proposed reassessment.
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