French General Tax Code
In forceI. - Capital gains subject to the regime of articles 39 duodecies à 39 quindecies resulting from the exchange of rights and shares carried out at the time of the contribution of such rights or shares to a company subject to a real taxation system may be subject to a tax deferral under the conditions set out in II. However, in the event of an exchange with a balancing payment, the capital gain realised is, up to the amount of the balancing payment received, included in the profit for the financial year during which the contribution takes place. The taxable amount may be subject to the long-term capital gains regime provided for in Article 39 duodecies, up to the limit of the capital gain realised on the rights or shares held for at least two years.
These provisions do not apply if the balancing payment exceeds 10% of the nominal value of the company rights allocated or if the balancing payment exceeds the capital gain realised.
II. - The application of I is subject to the following conditions:
1° The contributor is a natural person who carries on a commercial, industrial, craft, liberal or agricultural activity on a professional basis within the meaning of IV of the article 155;
2° The contribution relates to all of the rights or shares required to carry on the business, held by the taxpayer and entered on the assets side of his balance sheet or in the fixed assets table.
For the application of the first paragraph, rights or shares in companies whose assets are mainly made up of built or unbuilt real estate that is not used by the company for its own operations, rights relating to a leasing contract concerning such property and entered into under the conditions provided for in 2 of Article L. 313-7 of the Monetary and Financial Code, of rights or shares in companies whose assets consist mainly of the same assets, rights or shares;
3° The receiving company receives, on the occasion of the contribution referred to in 2° or other concomitant contributions, more than 50% of the voting rights or capital of the company whose rights and shares are contributed;
4° The rights and shares received in consideration for the contribution are necessary for the carrying on of the business of the contributor.
III. - The deferral of taxation ends when:
1° The contributor ceases to carry on a commercial, industrial, craft, liberal or agricultural activity on a professional basis within the meaning of IV of Article 155;
2° The rights or shares received in remuneration of the contribution or the rights or shares contributed are sold, repurchased or cancelled;
3° The rights or shares received in remuneration of the contribution cease to be necessary for the carrying on of the contributor's business.
IV. - Notwithstanding 2° of III, the tax deferral provided for in I is maintained:
1° In the event of an exchange of rights or shares resulting from a merger or demerger of the company whose rights or shares were contributed or of the company receiving the contribution until the date of sale, redemption or cancellation of the rights or shares received on the exchange;
2° In the event of a transfer, under the conditions provided for in article 41, to one or more natural persons of the rights or shares received as consideration for the contribution or of the rights or shares received in exchange for a transaction mentioned in 1° if the beneficiary or beneficiaries of the transfer undertake to pay the tax on the capital gain on the contribution on the date on which one of the events mentioned in III, assessed where applicable at the level of the beneficiary or beneficiaries, occurs.
V. - The contributor must attach to the declaration provided for in article 170 in respect of the year in progress on the date of the contribution and subsequent years a statement in accordance with the model provided by the administration showing the information required to monitor the capital gains whose taxation is deferred. A decree will specify the content of this statement.
The option to benefit from the scheme defined in this article is exclusive of that of the schemes provided for in II of Article 93 quater and in articles 151 septies, 151 septies A, 151 octies, 151 octies A and 238 quindecies.
