French General Tax Code
In forceI. - Profits or losses and capital gains or losses resulting from the transfer, carried out pursuant to a trust transaction defined in article 2011 of the Civil Code, into a trust estate of assets and rights entered on the assets side of the balance sheet of the settlor of the trust are not included in the taxable income for the financial year of transfer if the following conditions are met:
1° The settlor carries on an activity falling within the articles 34 or 35, an agricultural activity within the meaning of article 63, a professional activity within the meaning of 1 of l'article 92 or a civil activity subject to corporation tax;
2° The settlor is designated as the beneficiary or one of the beneficiaries in the trust contract ; the settlor's rights representing the property or rights transferred to the trust estate are entered on the settlor's balance sheet;
3° The trustee must comply with the following undertakings, made in the trust contract:
a) Record in the accounts of the trust estate the assets or rights transferred as well as the depreciation and provisions of any kind relating thereto;
b) Substitute itself for the settlor for the reintegration of the provisions and results relating to the assets or rights transferred, the taking into account of which had been deferred for the taxation of the latter...;
c) Calculate the capital gains realised subsequently on the disposal of non-depreciable fixed assets that have been transferred to the trust assets on the basis of the value they had, for tax purposes, in the accounts of the settlor;
d) Reintegrate the capital gains or losses realised on the transfer of depreciable assets into the profits taxable in respect of the trust assets. The reintegration of capital gains is carried out in equal parts, within the limit of the initial duration of the trust agreement, over a period of fifteen years for buildings and rights relating to buildings as well as for plantations and fixtures and fittings of depreciable land over a period at least equal to this duration. This period is five years in other cases.
However, the disposal of a depreciable asset results in immediate taxation of the portion of the capital gain relating to this asset that has not yet been reintegrated.
On the other hand, subsequent depreciation and capital gains relating to depreciable items are calculated on the basis of the entry value in the records of the trust estate;
4° Items other than fixed assets transferred to the trust estate must be entered in the records of the trust estate for the value they had, for tax purposes, in the settlor's records.
Failing this, the profit corresponding to the difference between the value of these items entered in the accounts of the trust estate and the value they had, for tax purposes, in the settlor's accounts is included in the settlor's taxable income for the financial year during which the transfer to the trust estate takes place.
II. - Rights relating to a leasing contract entered into under the conditions provided for in 1 and 2 of Article L. 313-7 of the Monetary and Financial Code are treated as fixed assets, depreciable or non-depreciable under the conditions set out in Article 39 duodecies A.
For the application of c of 3° of I, in the event of a subsequent transfer of the rights mentioned in the first paragraph which are treated as non-depreciable items or the transfer of the land, the capital gain is calculated on the basis of the value that these rights had, from a tax point of view, in the records of the grantor.
These provisions apply to rights relating to leasing contracts concerning depreciable intangible items of a business or similar.
III. - For the application of this article, portfolio securities whose disposal result is excluded from the long-term capital gains or losses regime in accordance with article 219 are treated as non-depreciable fixed asset items.
IV. - A decree shall specify, as necessary, the terms and conditions for the application of this article, in particular where the settlor carries on an activity the results of which are subject to income tax in the non-commercial profits category.
