French General Tax Code
In force1. In the event of a merger or demerger of companies, the allocation of securities, sums or values to the members of the transferring company in consideration for the cancellation of the securities of that company shall not be considered as a distribution of income from movable property.
These provisions apply to mergers or demergers of open-ended investment companies with a preponderance of real estate capital referred to in 3° nonies of Article 208, provided that the company receiving the contributions undertakes, in the merger deed, to substitute itself for the absorbed company for the distribution obligations provided for in II of Article L. 214-69 of the Monetary and Financial Code. In the event of a demerger, these obligations must be assumed by the companies receiving the contributions in proportion to the amount of the actual assets contributed, assessed on the effective date of the transaction.
2. 1 applies in the event of the allocation of securities representing a partial contribution of assets of a complete branch of activity to the members of the contributing company, where:
a) The contribution is placed under the regime of Article 210 A ;
b) The transferring company still has at least one complete branch of activity after the completion of the contribution;
c) This allocation, proportional to the partners' rights in the capital, takes place within one year of the completion of the contribution.
When the allotment is made to a company, the allotted securities must be entered on the balance sheet at a value equal to the product of the book value of the securities of the contributing company and the ratio existing, on the date of the contribution transaction, between the actual value of the allotted securities and that of the securities of the contributing company. The book value of the transferring company's securities is reduced accordingly.
Where the tax value of the transferring company's securities is different from their book value, the capital gain on the disposal of these securities and that of the securities distributed are determined on the basis of this tax value, which must be distributed in accordance with the same procedures as those set out in the penultimate paragraph of this 2.
2 bis. Where the partial contribution of assets does not represent a complete branch of activity or where the condition in b of 2 is not met, 2 applies upon approval issued to the contributing company under the conditions provided for in Article 1649 nonies. The application for approval must be filed prior to the completion of the contribution.
Approval is granted when:
a) The conditions set out in a, b and c of 3 of article 210 B are met;
b) The transfer is justified by an economic reason, reflected in particular by the transferring company carrying on an independent business and improving its structures, as well as by an association between the parties formalised by an undertaking by its shareholders to retain the transferring company's shares for three years from the completion of the transfer.
However, the obligation to retain the securities of the transferring company and the obligation to retain the securities referred to in a of 3 of Article 210 B are only required of shareholders who hold in that company, on the date of approval of the contribution, at least 5% of the voting rights or who exercise or have exercised, in the six months prior to that date, directly or through their corporate officers or agents, management, administrative or supervisory functions and hold at least 0.1% of the voting rights in the company.
The retention obligation referred to in the second paragraph of this b is not required of shareholders who hold at least 5% of the voting rights in the transferring company on the date of approval of the contribution if the following conditions are met:
the transferring company is not controlled by a shareholder or group of shareholders acting in concert within the meaning of Article L. 233-3 of the French Commercial Code;
the shares of the transferring company are admitted to trading on a French or European regulated market;
the shareholder holding at least 5% of the voting rights of the transferring company does not exercise significant influence over the management of the latter within the meaning of Article L. 233-17-2 of the same code.
3. The provisions of 1, 2 and 2a do not apply to mergers, demergers and partial asset contributions whereby a company that is not exempt from corporation tax contributes all or part of its assets to an open-ended investment company.
