French General Tax Code
In forceI. 1. The taxation of capital gains derived from the disposal of securities mentioned in I of article 150-0 A may, if the proceeds of the disposal are invested, before 31 December of the year following that of the disposal, in a cash subscription to the capital of a company whose securities, on the date of the subscription, are not admitted to trading on a regulated market, be deferred until such time as the transfer, redemption or cancellation of the securities received as consideration for this contribution takes place.
The deferral is subject to the condition that the taxpayer makes the request and declares the amount of the capital gain in the declaration provided for in Article 97 and within the deadline applicable to this declaration.
2. The deferral of taxation is subject to the condition that, on the date of the transfer, the rights held directly by the members of the transferor's tax household exceed 5% of the corporate profits of the company whose securities are being transferred.
3. The deferral of taxation is, in addition, subject to the following conditions:
a) During the three years preceding the transfer or since the creation of the company whose securities are being transferred if it has been created for less than three years, the transferor must have been an employee of the said company or have performed one of the functions listed in 1° of 1 of III of Article 975 ;
b) The proceeds of the transfer must be invested in a cash subscription to the initial capital or in a cash capital increase of a company that has been in existence for less than fifteen years on the date of the contribution. The corporate rights issued in consideration for the contribution must be fully paid up when they are subscribed;
c) The company receiving the contribution must carry on a business other than those mentioned in the last paragraph of I of Article 44 sexies and, without having exercised an option for another tax regime, be liable in France to corporation tax by operation of law or by option;
d) The company receiving the contribution must not have been created as part of a merger, restructuring, expansion or takeover of pre-existing activities, unless it meets the conditions set out in I of l'article 39 quinquies H ;
e) At least 75% of the capital of the company receiving the contribution must be continuously held by individuals or legal entities held by individuals. For the purposes of determining this percentage, the holdings of venture capital companies, regional development companies and financial innovation companies are not taken into account provided that there is no arm's length relationship within the meaning of 12 of Article 39 between the company receiving the contribution and the latter companies. Similarly, this percentage does not take into account holdings in venture capital funds, local investment funds and innovation investment funds. This condition is not required where the securities of the company receiving the contribution are subsequently admitted to trading on a French or foreign market;
f) The corporate rights representing the cash contribution must be held directly and in full ownership by the taxpayer;
g) The rights in the corporate profits of the company receiving the contribution held directly or indirectly by the contributor or his spouse, their ascendants and descendants must not together exceed 25% of these profits at any time during the five years following the completion of the contribution;
h) The persons referred to in g must neither be partners in the company benefiting from the contribution prior to the contribution transaction, nor have held the positions listed in 1° of 1 of III of Article 975 therein since its creation and for a period of five years following the date of completion of the contribution.
4. The tax deferral provided for in this article is exclusive of the application of the provisions of article 199 terdecies-0 A.
5. Failure to comply with any of the conditions laid down for the application of this article shall, notwithstanding any provisions to the contrary, result in the capital gains tax becoming payable immediately, without prejudice to the late payment interest provided for in article 1727 deducted from the date on which this tax should have been paid.
6. From 1 January 2000, when the securities received as consideration for the contribution are the subject of an exchange transaction under the conditions provided for in II of Article 150 UB and in article 150-0 B, the taxation of the capital gain previously deferred pursuant to 1 shall be deferred ipso jure to the time when the transfer, repurchase, redemption or cancellation of the new securities received takes place.
7. (Repealed)
II. - When the securities received in the cases provided for in 1 and 6 of I are the subject of a disposal, the proceeds of which are invested in a cash subscription to the capital of a company under the conditions set out in the same I, the taxation of the capital gains previously deferred may, at the request of the taxpayer, be deferred again until the time when the transfer, redemption or cancellation of the new securities received takes place, provided that the taxation of the capital gain realised at the time of this disposal is itself deferred. In this case, the conditions set out in 2 and a of 3 of I do not apply.
