French General Tax Code
In forceI. - Capital gains subject to the articles 39 duodecies to 39 quindecies and realised in the context of a commercial, industrial, craft, liberal or agricultural activity on the occasion of the transfer of a sole proprietorship or a complete branch of activity other than those mentioned in V are exempt for:
1° The whole of their amount when the stipulated price of the items transferred or their market value, to which are added capital charges and indemnities stipulated in favour of the transferor, on whatever basis and for whatever reason, is less than or equal to €500,000;
2° Part of their amount when the stipulated price of the items transferred or their market value, to which are added the capital charges and the indemnities stipulated in favour of the transferor, for whatever reason and for whatever reason, is greater than €500,000 and less than €1,000,000.
For the application of 2°, the exempt amount of the capital gains is determined by applying to them a rate equal to the ratio between, in the numerator, the difference between the amount of €1,000,000 and the value of the items transferred and, in the denominator, the amount of €500,000.
II. - The exemption provided for in I is subject to the following conditions:
1 The business must have been carried on for at least five years;
2 The person at the origin of the transfer is:
a) A company whose profits are subject to income tax or a taxpayer who carries on his professional activity within the framework of a company whose profits are, pursuant to the articles 8 and 8 ter, subjected on its behalf to income tax;
b) A not-for-profit organisation ;
c) A local authority, a public establishment for inter-communal cooperation or one of their public establishments;
d) A company subject to corporation tax which cumulatively meets the following conditions:
1° it employs fewer than two hundred and fifty employees and either achieved annual sales of less than €50 million during the financial year, or has a balance sheet total of less than €43 million;
2° its capital or voting rights are not held to the extent of 25% or more by a company or by several companies that do not meet the conditions of the previous paragraph on a continuous basis during the financial year. For the purposes of determining this percentage, holdings in venture capital companies, venture capital mutual funds, specialised professional funds covered by article L. 214-37 of the Monetary and Financial Code as it read prior to Order no. 2013-676 of 25 July 2013 amending the legal framework for asset management, professional private equity funds, sociétés de libre partenariat, sociétés de développement régional, sociétés financières d'innovation and sociétés unipersonnelles d'investissement à risque are not taken into account provided there is no arm's length relationship within the meaning of 12 of the article 39 between the company in question and the latter companies or funds. This condition is assessed on a continuous basis during the financial year;
For the application of this d, the benefit of the provisions of I is subject to compliance with Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid, Commission Regulation (EU) No 1408/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the agriculture sector or Commission Regulation (EU) No 717/2014 of 27 June 2014 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid in the fisheries and aquaculture sector ;
3 In the case of a transfer for valuable consideration, the transferor or, in the case of a company, one of its members who directly or indirectly holds at least 50% of the voting rights or rights in the company profits or exercises effective management therein does not exercise, de jure or de facto, effective management of the transferee company or does not hold, directly or indirectly, more than 50% of the voting rights or rights in the company profits of that company.
III. - All of the rights or shares held by a taxpayer who carries on his professional activity within the framework of a company whose profits are, pursuant to articles 8 and 8 ter, subject in his name to income tax and which are considered as assets allocated to the exercise of the profession within the meaning of I of article 151 nonies.
When the conditions set out in 1 to 3 of II are met, the capital gains realised on the transfer of rights or shares mentioned in the first paragraph of this III are exempt for:
1° All of their amount when the market value of the rights or shares transferred is less than or equal to €500,000;
2° Part of their amount when the market value of the rights or shares transferred is greater than €500,000 and less than €1,000,000.
For the application of 2°, the exempt amount of the capital gains is determined by applying to them a rate equal to the ratio between, in the numerator, the difference between the amount of €1,000,000 and the value of the securities transferred and, in the denominator, the amount of €500,000.
For the determination of the thresholds mentioned in 1° and 2°, account is taken of the transfer of all of the rights or shares defined in the first paragraph as well as transfers carried out over the previous five years.
By way of derogation from V, the provisions of this III apply to capital gains realised on rights or shares in companies whose assets are mainly made up of built or unbuilt property allocated by the company to its own operation or rights or shares in companies whose assets are mainly made up of the same property, rights or shares.
In the event of a transfer for valuable consideration of rights or shares entitling the transferor to the exemption provided for in the second paragraph, the transferor must not directly or indirectly hold any voting rights or rights in the corporate profits of the transferee company.
IV. - The exemption provided for in I and III is called into question if the transferor falls into one of the situations referred to in 3 of II and the last paragraph of III at any time during the three years following the completion of the transaction that benefited from the regime provided for in this article.
V. - Capital gains realised on the transfer of a sole proprietorship or a complete branch of activity relating to:
1° Built-up or unbuilt real estate assets;
2° Rights or shares in companies whose assets are mainly made up of built-up or unbuilt real estate assets or rights or shares in companies whose assets are mainly made up of the same assets, rights or shares, are taxed under the conditions of ordinary law.
VI. - For the application of the provisions set out in III and V, rights relating to a leasing contract entered into under the conditions set out in 2 of Article L. 313-7 of the Monetary and Financial Code are treated as assets.
For the application of the provisions set out in III, the assets mentioned in I of A of Article 1594-0 G are not considered to be assigned to the operation of the business.
VII. - The transfer of a business that is the subject of a management lease or comparable contract may benefit from the regime defined in I if the following conditions are simultaneously met:
1° The business has been in operation for at least five years at the time of the letting;
2° The transfer is made to the lessee or, in compliance with the contract, to any other person, provided that this transfer relates to all of the elements contributing to the operation of the business which was the subject of the management lease or a comparable contract.
For the purposes of assessing the thresholds mentioned in 1° and 2° of I, account is taken of the stipulated price of the elements of the business leased or their market value, to which are added capital charges and indemnities stipulated in favour of the transferor, for any reason whatsoever.
VIII. - The option to benefit from the scheme defined in this article is exclusive of the schemes provided for in I of article 41, in I ter of article 93 quater, in articles 151 septies, 151 octies and 151 octies A, in II of article 151 nonies and in articles 210 A to 210 C.
IX. - The provisions of this article apply to transfers made on or after 1 January 2006.
