French General Tax Code
In forceI. - A company formed exclusively for the purpose of purchasing all or part of the capital of a company, under the conditions mentioned in II, may benefit from a tax credit.
For each financial year, the tax credit is equal to a percentage of the interest due in respect of that financial year on the loans taken out by the company formed for the purpose of the purchase during the year in which the company was formed. This percentage is equal to the standard rate of corporation tax applicable to the profits made by the acquired company in respect of the previous financial year. The tax credit is limited to the amount of corporation tax paid by the acquired company in respect of that previous financial year, in proportion to the new company's shareholding in the acquired company. It is deducted from the corporation tax due for the same financial year by the new company; the excess is reimbursed to the company.
The tax credit provided for in this article does not constitute taxable income for the purposes of determining the income of the company created. The interest used to calculate the tax credit does not constitute a deductible expense for determining this taxable income. If the tax credit is limited by application of the provisions of the second paragraph, the non-deductible amount is reduced in the same proportion.
The shares of the new company may benefit from double voting rights as soon as they are issued.
The new company may issue convertible bonds or bonds with share subscription warrants as soon as it is created. For a period of two years, these securities may only be sold to holders of securities of the new company.
The directors of the acquired company may be bound to it by an employment contract.
II. - The benefit of the provisions of I is subject to the following conditions:
a) The acquired company and the new company must be subject to the ordinary corporate tax regime.
b) The acquired company must carry on an industrial or commercial activity within the meaning of the article 34 or a professional activity within the meaning of 1 of the article 92 or an agricultural activity. It must have employed at least ten employees during each of the two years preceding the buyout. This last condition is required for financial years beginning on or after 1 January 1991.
c) More than 50% of the voting rights attached to the shares of the new company must be held by persons who, on the date of the buyout, are employees of the acquired company. This percentage is assessed taking into account the voting rights attached to the securities issued by the new company as well as those likely to result from the conversion of bonds or the exercise of share warrants.
For the purposes of these provisions, an employee of a company more than 50% of whose capital is held by the acquired company is treated in the same way as an employee of the latter.
These rights must not be held, directly or indirectly, for more than 50% by other companies.
For the application of the provisions of this II, the voting rights of the new company that are held by a general partnership or a non-trading company, which has not opted for corporation tax, formed exclusively between the employees mentioned in the first paragraph, are considered to be held by these same persons, if the sole purpose of the company is to hold the securities of the new company.
If securities of the new company are sold by the general partnership or the civil partnership or if securities of one of the latter two companies are sold by the employees, the penalties provided for in the fourth and fifth paragraphs of II of Article 83 bis and the provisions of III are applicable.
d) The new company must hold, from its creation, more than 50% of the voting rights of the acquired company. The acquired company must be managed by one or more of the employees referred to in c.
An employee may not hold, directly or indirectly, 50% or more of the voting rights of either the new company or the acquired company. Shares in the acquired company held, directly or indirectly, by the employees referred to in c may only be transferred to the new company in exchange for shares in the latter company.
In the event of a merger of the two companies, the employees in question must hold more than 50% of the voting rights in the company resulting from the merger.
The loans referred to in the second paragraph of I must be contracted for a term of no more than fifteen years. Their gross actuarial rate is at most equal to the average gross yield on the issue of private company bonds in the month preceding the date of the contract, plus two and a half points. They must not include any other advantage or right for the benefit of the lender other than those attached to convertible bonds or bonds with share warrants mentioned in the last paragraph of I.
The redemption is carried out between 15 April 1987 and 31 December 1991.
III. - The advantages provided for in I are no longer applicable from the year in which one of the conditions provided for in II ceases to be met.
I.
