French General Tax Code
In forceI. - Capital gains subject to the regime of articles 39 duodecies à 39 quindecies and realised by an individual on the occasion of the free transfer of a sole proprietorship may benefit from the following provisions:
a. The taxation of capital gains relating to fixed asset items recognised on the occasion of this transfer is deferred until the date of the sale or cessation of the business or until the date of sale of one of these items if this is earlier.
The taxation of the capital gains referred to in the first paragraph is carried out on the date on which the deferral is terminated in the name of the beneficiary or beneficiaries of the transfer of the sole proprietorship.
b. In the event of a transfer for valuable consideration of his rights by a beneficiary, the tax deferral is terminated for the amount of the capital gain relating to his rights. The capital gains are taxed in the name of the beneficiary.
c. In the event of a new transfer free of charge by one of the beneficiaries of the transfer referred to in the first paragraph, the deferral is maintained if the beneficiary of the new transfer undertakes to pay the capital gains tax on the date on which one of the events referred to in a or b occurs. Failing this, the capital gains relating to the items transferred are taxed in the name of the donor or the deceased.
d. In the event of a contribution to a company under the conditions set out in I and II of article 151 octies, the deferral of taxation is maintained if the beneficiary or beneficiaries having made the contribution undertake to pay the tax on the capital gain deferred on the date on which one of the events referred to in a occurs. Failing this, the capital gains relating to the contributed items are taxed in the name of the contributor(s). In the event of the sale of all or part of the securities received as consideration for this contribution, the deferral is terminated in the name of the beneficiary or beneficiaries who made the contribution.
d bis. In the event of a division with a balancing payment, the deferral of taxation is maintained if the beneficiary or beneficiaries of the sole proprietorship undertake to pay the tax on the deferred capital gain on the date on which one of the events referred to in a or b occurs.
e. For the application of this article, the leasing of all or part of the business is treated as a total or partial cessation.
II. - Where the business is continued for at least five years from the date of the transfer referred to in the first paragraph of I, the capital gains remaining to be carried forward as defined in the first paragraph of a of I are definitively exempt.
III. - Profits relating to inventories recorded at the time of the transfer referred to in the first paragraph of I are not taxed if the new beneficiary operator(s) records these inventories at the book value for which they appear on the balance sheet of the former company.
IV. - a. The regime defined in I applies on the basis of an option exercised by the operator(s) and, if applicable, by the other beneficiaries when the latter accept the transfer.
b. The beneficiary or beneficiaries having opted for the regime defined in I shall send the administration a statement showing the amount of capital gains realised on the transfer and the taxation of which is deferred in accordance with a, c and d of I.
c. The beneficiary or beneficiaries referred to in a must attach to the declaration provided for in l'article 170, in respect of the year in progress on the date of the transfer and subsequent years, a statement showing the information required to monitor the capital gains whose taxation is deferred in accordance with a, c and d of I.
d. The operator(s) referred to in a shall attach to their income tax return a statement showing, for each type of item, the information required to calculate taxable capital gains.
e) Article 151 septies does not apply where the option provided for in a is exercised.
V. - A decree specifies the reporting obligations.
