French General Tax Code
In forceI. - Where a taxpayer carries on his professional activity within the framework of a company whose profits are, pursuant to the articles 8 and 8 ter, subject in his name to income tax in the category of actual agricultural profits, industrial or commercial profits or non-commercial profits, his rights or shares in the company are considered in particular for the application of articles 38,72and 93, as assets allocated to the exercise of the profession.
II. - 1. In the event of a gratuitous transfer to an individual of company rights considered, pursuant to I, as assets allocated to the exercise of the profession, taxation of the capital gain recorded may be deferred until the date of the subsequent sale, redemption, cancellation or transfer of these rights.
Taxation of this capital gain is carried out on the date on which the deferral is terminated in the name of the beneficiary or beneficiaries of the transfer of the company rights.
When one of the events putting an end to the deferral of taxation referred to in the first paragraph occurs, the taxation of the capital gain is carried out in the name of the beneficiary of the transfer.
In the event of a new transfer free of charge by one of the beneficiaries of the transfer referred to in the first paragraph, the deferral is maintained if the beneficiary of the new transfer undertakes to pay the tax on the capital gain on the date on which one of the events referred to in the first paragraph occurs. Failing this, taxation of the capital gain relating to the rights transferred is carried out in the name of the donor or the deceased.
When the business is continued for at least five years from the date of the free transfer referred to in the first paragraph, the deferred capital gain is definitively exempt.
In the event of a division with a balancing payment, the deferral of taxation is maintained if the beneficiary or beneficiaries of the corporate rights referred to above undertake to pay the tax on the deferred capital gain on the date on which one of the events referred to in the first paragraph occurs.
2. The regime defined in 1 applies on the basis of an option exercised by the beneficiary or beneficiaries when they accept the transfer.
The beneficiary or beneficiaries who have opted for the regime defined in 1 provide the administration with a statement showing the amount of capital gains realised at the time of the transfer and whose taxation is deferred in accordance with 1.
3. A decree specifies the content of the reporting obligations mentioned in 2.
4. Article 151 septies shall not apply where the option provided for in 2 is exercised.
III. - In the event that a company referred to in I becomes liable for corporation tax or is converted into a company liable for corporation tax, taxation of the capital gain recorded is deferred to the date of sale, redemption or cancellation of the shareholder's units or shares. This deferral is maintained in the event of a transfer, free of charge, of the shareholder's units or shares to an individual if the latter undertakes to declare this capital gain in his or her name when the units or shares are sold, redeemed or cancelled.
In the event of a gratuitous transfer made under the conditions provided for in the first paragraph, the capital gain carried forward is definitively exempt when, continuously over the five years following the transfer, the following conditions are met:
1° The beneficiary or beneficiaries of the transfer exercise one of the functions listed in 1° of 1 of III of Article 975 and under the conditions provided for in the same 1° in the company whose shares or units were transferred;
2° The company whose shares or units were transferred continues its commercial, industrial, craft, liberal or agricultural activity.
The exemption provided for in the second paragraph applies to the capital gain carried forward on the rights or shares held by the beneficiary or beneficiaries of the transfer at the end of the period referred to in the same paragraph.
IV. - When the taxpayer referred to in I ceases to carry on his professional activity, the taxation of the capital gain recorded on the shares which he retains ownership of is deferred until the date of sale, redemption or cancellation of these shares.
This deferral is maintained in the event of a transfer, free of charge, of the shareholder's shares or units to an individual if the latter undertakes to declare this capital gain in his name when these shares or units are sold, redeemed or cancelled.
In the event of a gratuitous transfer carried out under the conditions provided for in the second paragraph, the deferred capital gain held by the beneficiary of the transfer is definitively exempt if, continuously over the five years following the transfer, this beneficiary of the transfer carries out his professional activity within the company, under the conditions provided for in I or in 1° of III, and the company continues its commercial, industrial, craft, liberal or agricultural activity.
IV bis. - The I of Article 151 octies B is applicable to the contribution of all of the rights or shares mentioned in I under the following conditions:
1° The assets of the company or grouping whose rights or shares are contributed are not mainly made up of built or unbuilt property that is not used by the company or grouping for its own operations, rights relating to a leasing contract covering such property and entered into under the conditions provided for in 2 of Article L. 313-7 of the Monetary and Financial Code, of rights or shares in companies whose assets consist mainly of the same assets, rights or shares;
2° The receiving company receives, on the occasion of the contribution referred to in 1° or other concomitant contributions, more than 50% of the voting rights in the company or grouping whose rights or shares are contributed.
The deferral of taxation ends on the date of sale, redemption or cancellation of the corporate rights received as consideration for the contribution or until the date of sale of the securities contributed by the recipient company where this is earlier.
This deferral of taxation is maintained:
a) In the event of a transfer, free of charge, of the rights or shares received as consideration for the contribution to one or more individuals if the beneficiary or beneficiaries of the transfer undertake to declare this capital gain on the date of disposal, redemption or cancellation of the corporate rights received as consideration for the contribution or on the date of disposal of the securities contributed by the beneficiary company where this is earlier;
b) In the event of an exchange of rights or shares, resulting from a merger or demerger of the company whose rights or shares were contributed or of the company receiving the contribution until the date of sale, redemption or cancellation of the rights received in exchange.
V. - The tax deferrals referred to in II, III and IV are maintained in the event of an exchange of corporate rights resulting from a merger or demerger until the date of sale, redemption or cancellation of the rights received in the exchange.
VI. - For the application of II to V, the beneficiary or beneficiaries of the tax deferral must attach to the declaration provided for in Article 170 in respect of the year during which the capital gains benefiting from deferred taxation are realised and subsequent years a statement showing the information required to monitor the capital gains whose taxation is deferred. A decree will specify the content of this statement.
