French General Tax Code
In forceI. - For corporation tax purposes, companies may amortise, over a period of five years:
1° Sums paid for cash subscriptions to the capital of innovative small or medium-sized enterprises;
2° Sums paid for cash subscriptions to units or shares in venture capital mutual funds, professional investment capital funds, free partnership companies or venture capital companies whose assets consist of securities, units or shares in innovative small or medium-sized enterprises, up to a percentage at least equal to that mentioned in the first paragraph of I of Article L. 214-30 of the Monetary and Financial Code. The assets of the fund, the société de libre partenariat or the venture capital company must, in addition, be made up of securities, units or shares received in return for capital subscriptions or securities, units or shares received in return for converted bonds of innovative small or medium-sized enterprises to the extent of a percentage at least equal to that mentioned in 1° of A of III of the same article.
3°Sums paid for cash subscriptions to units or shares in funds or companies set up on the basis of foreign law located in a Member State of the European Union or in another State party to the Agreement on the European Economic Area that has concluded an administrative assistance agreement with France with a view to combating tax fraud and tax evasion, when the latter have the same characteristics as those mentioned in 2°.
When the funds or companies mentioned in 2° and 3° repurchase securities, units or shares of an innovative small or medium-sized enterprise included in the composition of their assets under the first percentage mentioned in the same 2°, they subscribe to the capital of this same enterprise up to at least the value of these repurchases. The fulfilment of this obligation is assessed over the lifetime of the fund or within ten years of the redemption by the venture capital company or the partnership company. The issue of securities, units or shares that will be subscribed after the buyout must be provided for in the business plan of the small or medium-sized enterprise that benefits from the buyout. The commitment of the fund or company to proceed with the required level of subscriptions is formalised by a declaration submitted to the tax authorities at the time of the buyback.
II. - The innovative small and medium-sized enterprises referred to in I are understood to be those of small and medium-sized enterprises, within the meaning of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty on European Union :
1° Which have their registered office in a Member State of the European Union or in another State party to the Agreement on the European Economic Area that has concluded an administrative assistance agreement with France with a view to combating tax fraud and tax evasion;
2° Whose securities are not admitted to trading on a French or foreign regulated market;
3° Which are not companies in difficulty, within the meaning of the Community guidelines on state aid for rescuing and restructuring companies in difficulty;
4° Which meet one of the two conditions mentioned in c of 1° of I of Article L. 214-30 of the Monetary and Financial Code enabling them to qualify as innovative companies within the meaning of the aforementioned Commission Regulation (EU) No 651/2014 of 17 June 2014;
5° Which meet one of the following two conditions:
a) They do not operate on any market;
b) They have been operating on any market for less than ten years after their first commercial sale within the meaning of the aforementioned Commission Regulation (EU) No 651/2014 of 17 June 2014. If the company calls on the body mentioned in the last paragraph of c of 1° of I of Article L. 214-30 of the Monetary and Financial Code to demonstrate its innovative nature, the latter defines the date of the first commercial sale. Failing this, this ten-year period is counted from the start of the financial year following that in which the company's sales exceeded €250,000 for the first time.
The conditions mentioned in the first paragraph and in 1° to 5° of this II are assessed on the date of the subscription or redemption. By way of exception, in the case of subscriptions mentioned in the last paragraph of I that the fund or company has undertaken to carry out following a redemption, these conditions are deemed to have been met on the date of the subscriptions if they were met on the date of the redemption.
However, when the securities, units or shares of a small or medium-sized company that meet the conditions set out in 2° of this II on the date of the subscription or redemption are admitted to trading on a French or foreign regulated market or multilateral trading facility after this date, they will only continue to be taken into account for the assessment of the percentages mentioned in 2° of I for a period of five years from the date of their admission.
II bis.Payments in respect of the subscriptions referred to in I must not exceed, per company receiving the payments, the ceiling of €15 million defined in paragraph 149 of the Commission Communication of 22 January 2014 on guidelines on State aid to promote investment in risk financing (2014/C19/04). In assessing this ceiling, account shall be taken of all financing subject to compliance with the same paragraph.
III. - 1. The companies mentioned in the first paragraph of I must not hold:
a) Directly or indirectly, more than 20% of the capital or voting rights of the small or medium-sized innovative company;
b) Securities, shares or stocks in the small or medium-sized innovative company for which they have not applied the depreciation provided for in this article.
The condition mentioned in b does not apply to companies that subscribe to shares in a fund mentioned in 2° or 3° of I or in a société de libre partenariat mentioned in 2° of I when the latter has delegated the management of its portfolio to a portfolio management company, if the investment decisions are taken by the manager of the fund or the société de libre partenariat in complete independence from the subscribers. However, in this situation, the two percentages of the assets of the fund or the société de libre partenariat mentioned in 2° of the same I must relate to securities, units or shares of innovative small or medium-sized companies in which the fund or the société de libre partenariat invests for the first time using subscriptions giving entitlement to the amortisation provided for in the said I.
2. - Where the companies mentioned in the first paragraph of I are affiliated, within the meaning of 12 of Article 39, they must not together hold, directly or indirectly, more than 20% of the capital or voting rights of the small or medium-sized innovative company.
3. - The conditions set out in a of 1 and 2 must be met continuously over the amortisation period. The condition mentioned in b of 1 is assessed on the date of the subscription, depending on the case, in an innovative small or medium-sized business or in a fund or company mentioned in 2° or 3° of I, in respect of which the company intends to carry out the amortisation provided for in the first paragraph of the same I.
IV. - The value of the securities, units or shares held by the company mentioned in the first paragraph of I which may be the subject of the amortisation provided for in the same I must not exceed 1% of the total assets of this company.
This limit is assessed at the close of the financial year during which each subscription took place, taking into account all the subscriptions of the company which are the subject of the amortisation provided for in the said I.
As an exception to the first paragraph of this IV, for a company that is a member of a group within the meaning of Article 223 A, the value of the securities, units or shares which may be subject to the amortisation provided for in I of this article may exceed 1% of the assets of that company, provided that the value of the securities, units or shares held by all the member companies of the group which are subject to amortisation does not exceed 1% of the sum of the total assets of the companies in the group at the close of the financial year.
V. - In the event of the sale of all or part of the securities, units or shares that have given entitlement to the amortisation provided for in I within two years of their acquisition or in the event of non-compliance with the conditions provided for in I to IV, the amount of amortisation applied in application of the same I, increased by a sum equal to the product of this amount by the rate of late payment interest provided for in l'article 1727, is reintegrated into the taxable profit for the financial year during which the disposal or non-compliance with a condition provided for in the same I to IV occurs.
VI. - When the securities, units or shares that have given entitlement to the exceptional amortisation provided for in I are sold after the period mentioned in V, the capital gain on the sale is taxed at the standard rate of corporation tax provided for in the second paragraph of I of article 219, up to the amount of the depreciation applied.
This capital gain refers to the excess of the sale price of the securities, units or shares over their original value less the depreciation deducted pursuant to I and not yet brought back on the day of the sale.
The standard rate of corporation tax also applies for taxation, up to the amount of depreciation applied:
1° Of the difference existing between the amount of the sums distributed by the venture capital mutual fund, the professional investment capital fund or the free partnership company and the amount of the sums paid by the company less the depreciation deducted pursuant to the same I, for the subscription of the units of this fund;
2° Of the distributions mentioned in 5 of Article 39 terdecies, made by the venture capital company.
VII. - This article applies to sums paid during the ten years following a date set by decree, which may not be more than six months after the date of receipt by the Government of the European Commission's decision allowing it to consider the legislative measure notified to it to be in compliance with European Union law on State aid.
