Taxation of restructurings
During its existence, a company may potentially undergo numerous transformations.
These restructurings may involve the merger of a company with another or the separation of a company’s activities into distinct structures.
The taxation applicable to these restructurings is very complex and depends on the operation carried out.
Mergers, splits, partial asset contributions – what are the differences?
The merger can be defined as the operation in which one company (new or existing) absorbs another. The merger results in the dissolution of the absorbed company without liquidation, with a transfer of its entire assets to the absorbing entity.
The split, on the other hand, corresponds to the operation in which the shareholders of a company decide to separate the activities by creating a second distinct structure.
The partial asset contribution is the operation in which a company A contributes an element of its assets to a company B. In return for its contribution, company A will receive shares of company B.
What is the taxation applicable to these restructurings?
Regarding mergers:
- The principle
In principle, in the case of a merger, the applicable tax consequences are those of the business cessation provided for in Article 201 of the General Tax Code (hereinafter “CGI”). This notably includes:
- Immediate taxation of profits,
- Immediate taxation of profits under deferred taxation (provision becoming obsolete),
- Immediate taxation of capital gains realized during the restructuring,
- Blocking of deficits at the level of the absorbed company,
- Potential challenge to the Parent/Subsidiary regime.
As you can understand, the consequences are significant and can sometimes hinder entrepreneurs. Fortunately, French taxation has taken this reality into account by implementing a preferential regime.
- The special regime (or preferential regime)
The special regime is provided for in Article 210 A of the CGI. It was established to avoid imposing heavy tax consequences on companies, given that mergers are very common and have a simple intermediate character.
This preferential regime allows for the consideration of the intermediate nature of the operation by granting it tax neutrality:
- Exemption of contribution capital gains at the level of the absorbed company,
- No taxation of deferred taxation profits,
- Transfer of deficits to the absorbing company (in certain cases, subject to approval),
- Gradual reintegration of contribution capital gains on depreciable assets,
- No challenge to the Parent/Subsidiary regime.
However, the benefit of the preferential regime is subject to certain conditions.
Indeed, the companies involved must be subject to corporate income tax. In addition, the operation must produce the true effects of a merger, namely the dissolution of the absorbed company without liquidation and the universal transfer of assets to the absorbing company. Finally, the option for the special regime must be included in the merger agreement.
Regarding splits and partial asset contributions:
In principle, the tax consequences of business cessation also apply to split and partial asset contribution operations. Fortunately, Article 210 B of the CGI provides that these operations can also benefit from the preferential regime applicable to mergers, but under certain conditions.
Indeed, both for the split and for the partial asset contribution, the preferential regime provided for in Article 210 A applies only in the case of the transfer of a complete branch of activity.
The administrative doctrine provides a definition of the complete branch of activity (BOI -IS-FUS-20-20 n°10):
“A complete branch of activity is defined as all the assets and liabilities of a division of a company that constitute, from an organizational point of view, an autonomous operation, i.e., a set capable of operating on its own.”.
In other words, there must be a transfer of all the human and material resources enabling the activity to be carried out autonomously.
It is also necessary to note that, even in the absence of the transfer of a complete branch of activity, it is possible to benefit from the preferential regime subject to approval.
Finally, for your information, there is also a preferential regime for registration duties provided for in Articles 816 and 817 of the CGI, allowing for the application of a fixed fee of €375 or €500 for these operations.
The tax regime for restructurings is quite complex. The assistance of a tax lawyer is highly recommended to successfully carry out these operations by making the most appropriate tax choices.
Expert Tax Lawyers in Restructuring Taxation
The tax lawyers at LEXPERTAX are experts in all areas of taxation, especially in the restructuring of companies.
We will provide you with our knowledge and experience so that tax issues do not hinder your restructuring projects.
