Intra-group agreements
More and more entrepreneurs and investors are choosing to structure their investments and activities in groups. Indeed, the use of a Holding company has become common to oversee and manage operational companies (or subsidiaries). The ownership of a group of companies necessarily raises questions about the concept of intra-group agreements.
Intra-Group Agreements, What Are They?
Intra-group agreements are, above all, contracts. Article 1101 of the Civil Code defines a contract as “an agreement of wills between two or more persons intended to create, modify, transmit, or extinguish obligations “.
In a less theoretical sense, intra-group agreements will organize relationships and financial flows between different companies of the same group, especially between the group’s parent company (Holding) and its subsidiaries.
The validity conditions of intra-group agreements are primarily set out in Article 1128 of the Civil Code. There are three: the consent of the parties, capacity, and lawful and certain content.
It is necessary to remain vigilant with intra-group agreements. Indeed, some of them may be classified as regulated agreements, and in this case, their validity requires the consent of the shareholders’ meeting.
The other validity conditions will depend on the specific agreement.
Overview of Key Intra-Group Agreements
Service Agreements:
Service agreements between companies of the same group can have various purposes. Generally, these agreements cover administrative, accounting, financial, tax, and legal services. Services are most often provided by the parent company to its subsidiaries in exchange for remuneration.
The remuneration for these services is called “management fees.” Setting up these “fees” is a crucial step in establishing such an agreement. Indeed, the remuneration must not be excessive in relation to the services provided, or it could result in a disguised transfer of profit to the parent company.
If the service is devoid of substance and the remuneration is disproportionate, the risks are nullification of the agreement and non-deductibility of the counterpart for the subsidiary.
Treasury Agreement (or Omnium Agreement):
It allows centralizing the entire treasury of a group within a pivot company, usually the parent company. This optimizes cash flow management by entrusting one company with the management of cash flows based on the needs of each subsidiary.
Setting up a treasury agreement requires determining, among other things: the companies involved, the powers of the company centralizing the treasury, repayment terms, and remuneration for cash advances.
Fiscal Integration Agreement:
It materializes the establishment of the fiscal integration regime between the group’s companies, as provided for in Article 223 A of the General Tax Code.
Setting up such a regime will result in a common taxation of the group at the level of the Holding company (group head). This common taxation will generate a considerable tax advantage since the profits made by certain companies in the group can offset the losses incurred by others.
In addition, fiscal integration will allow an exemption from the distribution of dividends at the level of the parent company, with taxation of a 1% share of expenses and charges.
Why Choose a Tax Lawyer for the Implementation of Intra-Group Agreements?
The implementation of an intra-group agreement must be subject to particular vigilance to produce the expected effects without possible challenge.
The assistance of tax lawyers specializing in corporate law will secure the drafting of various intra-group agreements.
The tax lawyers at LEXPERTAX are experts in tax law and corporate law, especially in the establishment of groups of companies and the drafting of intra-group agreements.
We will advise you on both the drafting aspect and the tax implications of intra-group agreements.
