New Benefits and Limitations of the “apport-cession”: A Tax Deferral Regime Subject to Reinvestment Requirements

Set forth in Article 150-0 B ter of the General Tax Code (“CGI”) to regulate the “contribution-transfer” regime—which has been widely challenged by the tax authorities in the past on the grounds of abuse of rights and whose main features had previously been established by case law— this legal provision has applied since November 14, 2012, to contributions-in-kind of securities made to a company controlled by the contributor, provided that the company is subject to corporate income tax and has its registered office in a European Union country or in a state or territory that has concluded a tax treaty with France containing an administrative assistance clause aimed at combating tax fraud and tax evasion.

In simple terms, this system allows for the application of a tax deferral mechanism that postpones taxation of the unrealized capital gain on the securities contributed until the securities are no longer held by the holding company that received the contribution of the individual’s assets—whether through sale, buyback, redemption, or cancellation of the securities—or, where applicable, until the individual transfers their tax residence outside of France. Eligibility for the tax deferral regime is, however, contingent upon the holding company reinvesting at least 50% of the proceeds from the sale of the securities received as a contribution in economic activities, provided that such sale occurs—as is relatively common—shortly after the contribution and, in any event, within three years. This reinvestment threshold must then be met before the expiration of a two-year period following the sale, through one or more reinvestments.

• The Nature of the Conditions for Economic Reinvestment Clarified

• The holding period for reinvested assets has been reduced to 12 months

• Tax treatment fixed as of the year of the contribution

• The use of successive restructuring operations becomes unlimited

• Immediate Taxation of the Cash Settlement Paid in Connection with a Contribution-and-Transfer Transaction