“Pacte Dutreil” exemption scheme: New rules to be enacted for 2019
The « Pacte Dutreil » exemption scheme, codified in Section 787 B of the French Tax Code, aims at facilitating the free transfers of businesses by exempting 75% of the company’s value from gift tax and/or inheritance tax, provided that several conditions – notably the undertaking of collective and individual commitments to temporarily retain company shares – are met.
Legal practitioners have criticized for many years the complexity of the “Pacte Dutreil” implementation, its binding character and its lack of flexibility, and have called the government to make this regime more open and easy to use.
Further to the draft « PACTE » bill (which consists in an action plan for the growth and transformation of French businesses), the first version of the draft finance bill for 2019 finally responds to this call by introducing several measures whose purpose is to give more flexibility to the “Pacte Dutreil” regime. These measures, to be discussed by the end of December, concretely consist in:
- Facilitating the sale of the shares of the transferred company between the people who signed the collective commitment to retain said shares: in that context the seller will lose the exemption attached to the shares sold by him but not the exemption attached to the shares kept by him (which is currently not admitted by the French tax authorities);
- Allowing, provided certain conditions are met, the contribution of the shares (to be retained according to the collective commitment) to a holding company, even if the holding company is not exclusively held by the contributors, and even if the holding company holds other assets in addition to the contributed shares;
- Easing the follow-up formalities, by limiting the number of certificates to be delivered by the company in order to confirm the continuous compliance with the conditions of application of the regime.
Although these measures are truly welcome, it is regrettable that other proposals put forward by legal practitioners were not inserted within this draft bill, such as (i) the simplification of the obligations consisting, for the commitment signatories, to hold executive positions in the company, or (ii) the possibility, for companies held through an interposed structure, to benefit under certain circumstances from a shortened period of commitment (“engagements réputés acquis”), as it is the case for companies directly held by the donator. It has to be noted though that, at this early stage, there is still hope to see such proposals added to the draft bill in the next few weeks by the way of parliamentary amendments.
Anyway, the measures actually proposed, provided that they are voted, will certainly encourage the conclusion of new “Pacte Dutreil” and open new opportunities of shares transfers that cannot be carried out in the current context. Please feel free to contact our tax team should you have any request on that matter.
Key words: Jurisinitiative, Brunswick, François Vignalou, Dutreil scheme, joint undertaking, family business transfer, budget bill for 2019, collective undertaking to retain shares, individual undertaking to retain shares
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