Tax consolidation and the carry-forward of losses
The group regime allows the results of consolidated companies to be offset and optimises the use of losses. It is also an area of intense scrutiny: ownership conditions, perimeter, intra-group neutralisations, the treatment of losses on entry and exit. A single error may call into question the consolidation itself. The firm secures your group and defends reassessments.
- Regime
- Tax consolidation: the parent alone is liable for the group's CIT (French Tax Code art. 223 A)
- Ownership
- Subsidiaries held at least 95%, continuously
- Result
- Offsetting of results within the consolidated result (French Tax Code art. 223 C)
- Losses
- Carry-forward (French Tax Code art. 209 I); specific rules on entry and exit
- Profile
- Groups and mid-cap companies under a tax consolidation regime
The tax consolidation regime
Tax consolidation (French Tax Code art. 223 A et seq.) allows a parent company to become solely liable for the corporate income tax due on the whole of the group formed with its subsidiaries held, directly or indirectly, at least 95% on a continuous basis.
The results of the member companies are offset within a consolidated result (French Tax Code art. 223 C), after various neutralisations of intra-group operations. The main benefit is to set off the losses of certain subsidiaries against the profits of the others immediately.
The treatment of losses
Losses lie at the heart of the issues. Several rules combine:
- A company's own losses arising before entry may be set off only against that company's own profit (French Tax Code art. 223 I);
- The consolidated loss is carried forward under the ordinary rules (French Tax Code art. 209 I);
- On exit or where the group ceases, the treatment of losses follows specific rules;
- The transfer of losses in the event of a merger requires an approval (French Tax Code art. 209 II).
The cap on the carry-forward (set-off capped above an annual threshold) makes the management of losses all the more sensitive.
Frequent points of scrutiny
Reassessments often bear on: compliance with the 95% threshold and its continuity, the perimeter of consolidation and the formalities of the election, intra-group neutralisations (debt waivers, subsidies, the 1% parent-subsidiary share), the set-off of losses (own and consolidated), and the consequences of an exit or a restructuring. A challenge to the regime may trigger the deconsolidation of results.
Securing and defending
Upstream, the firm audits the perimeter, the formalities of the election and the tracking of losses, and secures restructuring operations (mergers, acquisitions, exits). During an audit, the defence bears on the reality of the regime's conditions, the accuracy of the neutralisations, the computation of the losses available for set-off, and the interaction with the other grounds (transfer pricing, parent-subsidiary share). We bring the dispute before the tax court where necessary.
Tax consolidation: your questions
What is the ownership threshold for tax consolidation?
The parent company must hold, directly or indirectly, at least 95% of the capital of the consolidated subsidiaries, continuously throughout the financial year (French Tax Code art. 223 A). A breach of the threshold may cause the subsidiary to leave the group.
Can a subsidiary's losses be set off before it joins the group?
Not against the consolidated result: a company's own losses arising before entry may be set off only against that company's own profit (French Tax Code art. 223 I). This rule is a frequent source of reassessment.
What happens to losses on leaving the group?
In principle the consolidated loss remains with the parent company, which carries it forward under the conditions of article 209 of the French Tax Code. The treatment of own losses and of neutralisations follows specific rules that must be anticipated.
Does a perimeter error call into question the whole consolidation?
It may cause a company to leave the group or, in certain cases, lead to a challenge to the regime, with deconsolidation of results. Hence the importance of rigorous tracking of the perimeter and of the formalities.
How can a restructuring within the group be secured?
By anticipating the treatment of losses and neutralisations, and, where appropriate, by resorting to the approval for the transfer of losses (French Tax Code art. 209 II). The firm structures such operations upstream.
A reassessment on consolidation or losses?
A confidential initial consultation to audit the perimeter, verify the neutralisations and the tracking of losses, and defend your group.
Written by
Me François Ouairy, avocat associé en charge du bureau de Paris, expert en fiscalité immobilière, fiducie et fiscalité financière.
This page presents the tax consolidation regime for information purposes; each matter calls for a specific analysis. References to the French Tax Code (art. 223 A et seq., 209) in force at the date of writing.