French General Tax Code
In forceI. - Constitutes a redemption premium:
1. For the negotiable loans referred to in article 118 and 6° and 7° of Article 120, the negotiable debt securities referred to in article 124 B and all other negotiable or non-negotiable debt or capitalisation securities or contracts, issued or entered into on or after 1 January 1993, the difference between the sums or values receivable, whatever their nature, with the exception of linear interest paid each year at regular intervals and remaining receivable after the acquisition, and those paid at the time of subscription or acquisition;
2. For loans or securities of the same nature split up from 1 January 1993, the difference between the sums or values to be received whatever their nature and the acquisition price of the right to payment of the principal, interest or any other remuneration of the loan, or of the security representing one of these rights.
Where applicable, for the application of this article, the premium includes the difference between the current value of the security after detachment of the purchase, subscription, exchange or option rights provided for in the contract and its redemption value.
The provisions of this I are applicable to a loan which is the subject of successive issues and a single stock exchange listing if part of this loan was issued from 1 January 1993.
II. - 1. For the loans or securities as well as for the stripping transactions referred to in I, the redemption premium and the interest paid each year are taxed in respect of each financial year after an actuarial apportionment when the premium exceeds 10% of the acquisition price.
However, this actuarial apportionment is not applicable to the loans or securities referred to in 1 of I whose average issue price is greater than 90% of their redemption value.
2. The fraction of the premium and interest to be included in the taxable income for each financial year until redemption is determined by applying the actuarial interest rate determined on the date of acquisition to the acquisition price; the acquisition price is increased by the fraction of the premium and interest capitalised on the anniversary date of the loan or security.
The actuarial rate is the annual rate which, on the acquisition date, equalises at this rate and with compound interest the present values of the amounts to be paid and the amounts to be received.
3. Where the contract or security contains a clause making the determination of the redemption value before maturity uncertain, the provisions of 2 apply on the basis that the actuarial interest rate on the acquisition date is equal to 105% of the latest monthly rate for long-term government bonds known at the time of acquisition, and using the latest date specified in the contract as the redemption date. However, these provisions do not apply if the redemption premium determined by applying this same rate, less the linear interest paid each year at regular intervals, is less than 10% of the issue value.
As an exception to the provisions of the first paragraph, if the contract includes an indexation clause, the redemption premium is calculated at the end of each financial year using the redemption value as it appears taking into account the change in the index recorded at that date since the acquisition of the security or the conclusion of the contract. The taxable fraction of the premium thus defined is equal to the difference between:
a) The earned value of this premium calculated at the rate which, applied to the acquisition price, makes it possible, using the compound interest method, to obtain the redemption value defined above;
b) And the fractions taxed pursuant to the second to fourth paragraphs since acquisition in respect of previous financial years.
In the latter case, a portion of the interest capitalised with a view to being paid at due dates in excess of one year is also taxable, where applicable; this portion is equal to the accrued amount of such interest calculated at the rate which, applied to the acquisition price, makes it possible, using the compound interest method, to obtain the amount of interest contractually due at a given due date.
If the contract includes a clause guaranteeing a minimum redemption value, the taxable portion of the premium in respect of a given financial year may not be less than that resulting from the application of the provisions of this paragraph using the guaranteed redemption value to calculate the premium.
III. - For the application of the provisions of 5° of 1 of Article 39, the provisions for depreciation of these loans, securities or rights are calculated in relation to their value at the time of entry on the assets side of the balance sheet.
IV. - For each financial year, the sums taxed pursuant to II are indicated in the appendix to the declaration provided for in article 53 A and are determined on the basis of a statement showing, for each category of securities or contracts of the same kind, the elements used to calculate these sums. This statement must be produced at the request of the administration.
V. - The provisions of this article do not apply to securities held by natural persons as part of the management of their private assets.
