French General Tax Code
In forceI. - When the redemption premium provided for at the time of issue or at the time of the original acquisition of the right exceeds 10% of the nominal value or acquisition price of that right, or when the contract for the issue of a bond provides for partial or total capitalisation of interest, the premium or interest is taxed after distribution by annual instalments.
Each annual instalment is taxed in the name of the holder of the security or right on the anniversary of the date on which the right is acquired.
This annual instalment is calculated by applying the gross actuarial interest rate determined on the date on which the right is acquired to the nominal amount of the loan taken out. However, at the time of payment of the interest or the premium, the tax base is equal to the amount of interest received and not yet taxed, and where applicable the fraction of the premium not yet taxed.
These rules do not apply to securities issued by the French State which the holder has the option of converting within three years of the issue.
II. - The redemption premiums or interest mentioned in I, relating to securities and rights held by open-ended investment companies (SICAV) and mutual funds, are, for the purposes of calculating the tax, deemed to be distributed, each year between the shareholders or unit holders for an amount defined in accordance with the procedures set out in this I. (Repealed for financial years ending on or after 29 September 1989.)
III. - The provisions of I and II only apply to securities issued from 1st June 1985.
IV. - 1. For loans or securities as well as for stripping transactions referred to in II of article 238 septies A, the redemption premium and the interest paid each year are taxed after an allocation by annual instalments when the premium exceeds 10% of the acquisition price.
However, the allocation by annual instalments is not applicable to the loans or securities referred to in 1 of II of article 238 septies A whose average issue price is greater than 90% of the redemption value.
2. The annual instalment is calculated by applying the actuarial interest rate determined on the date of acquisition to the acquisition price. However, when the loan, security or right is repaid, the tax base is equal to the amount of the as yet untaxed portion of the income. In addition, the first taxable annual instalment after the acquisition is calculated pro rata temporis from the date of acquisition to the first taxation date.
3. In the event of the acquisition of securities from the same debtor with the same maturity and the same method of remuneration, but acquired at different prices, the acquisition price to be used is the weighted average acquisition value of these securities. At the time of each new acquisition, the breakdown by annual instalments is modified accordingly.
4. Where the contract includes an indexation clause or several possible redemption dates, the redemption premium is determined by using as the actuarial interest rate the latest gross yield on issue of private company bonds known at the time of acquisition and the redemption date is taken to mean the latest date.
5. Each annual instalment is taxable annually and, for this purpose, is deemed to have been received on the date which, in the tax year, corresponds to the date scheduled for redemption.
6. The levy provided for in article 125 A is levied on the date specified in 5 above. This deduction is made by the person with whom the security or right is deposited or registered in an account, or, in other cases, by the debtor on the account provided by the taxpayer for this purpose.
7. The provisions of this article cease to apply to securities or rights issued from 1 January 1993 and held by taxpayers other than those mentioned in V of article 238 septies E.
V. - With effect from 3 June 1992, the allocation by annual instalments provided for in I and IV ceases to apply to securities held by individuals and not included in business assets.
