French General Tax Code
In forceI. - As an exception to the provisions of Article 238 quater I,when the trust contract is terminated, the profits or losses as well as the capital gains or losses resulting from the transfer of the assets or rights from the trust assets to the settlor are not included in the taxable income for the year of transfer if the following conditions are met:
1° The trust contract is terminated without liquidation of the trust assets;
2° The settlor must comply with the following undertakings:
a) To enter the transferred assets or rights on its balance sheet together with the depreciation and provisions of any kind relating thereto;
b) To take the place of the trustee for the reintegration of the provisions and income relating to the transferred assets and rights, the taking into account of which had been deferred for the taxation of the trust assets...;
c) Calculate the capital gains realised subsequently on the disposal of the non-depreciable fixed assets transferred to it on the basis of the value they had, from the tax point of view, in the records of the trust assets;
d) Reintegrate into its taxable profits the capital gains or losses realised on the transfer of depreciable assets. The reintegration of capital gains is carried out in equal parts over a period of fifteen years for buildings and rights relating to buildings as well as for plantations and fixtures and fittings of land depreciable over a period at least equal to this period. 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 shall be calculated on the basis of the value at which they were entered in his balance sheet;
3° Items other than fixed assets must be entered in the settlor's balance sheet at the value they had, for tax purposes, in the accounts of the trust estate.Failing this, the profit corresponding to the difference between the value of these items on the settlor's balance sheet and the value they had, for tax purposes, in the accounts of the trust estate is included in the taxable income of the trust estate in respect of the financial year during which the assets are returned to the settlor.
II. - For the application of I, the undertakings mentioned in 2° of I are made in the deed recording the transfer of the assets or rights from the trust estate to the settlor or, failing this, in a private deed with a date certain, drawn up on this occasion.
III. - The rights attached 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 2° 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 trust assets.
These provisions apply to rights attached to leasing contracts relating to depreciable intangible elements of a business or similar.
IV. - 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.
V. - 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.
