In a decision dated May 25, 2022, the Court of Cassation censured the administrative doctrine and allowed a Pacte Dutreil to survive even after the loss of the "animating" quality of a holding. Wealth A7 explains this jurisprudential evolution:

What is the Dutreil Pact?

The Dutreil pact is a mechanism that allows the transfer of a company to benefit from a tax advantage. This system allows to benefit from a 75% exemption on the transfer duties resulting from the transfer of the shares, whether it is a free transfer or in the context of an inheritance.

Companies and sole proprietorships engaged in an operational activity, i.e. agricultural, commercial, industrial, artisanal or even liberal, can benefit from this preferential regime. Since the 2019 finance law, holding companies can also be included in the Dutreil pact.

Conditions to be met

Within the framework of a Pacte Dutreil, the shares of the company concerned by the Pacte Dutreil must be subject to a collective retention commitment for a minimum of two years. This commitment must be made by the deceased or the donor for himself and his donees. Then, the beneficiaries must commit themselves again for a period of four years.  One of the beneficiaries who has made the commitment to retain must carry on his professional activity or a management function in the company throughout the duration of the collective commitment and for a period of three years from the time of the free transfer.

The case of holding companies

Group holding companies can effectively benefit from the exemption subject to the conditions that we have just seen. This case applies when the industrial or commercial company is held by a so-called "holding company" and the transfer of the shares does not relate directly to the securities of the target company but to those of the holding company.

In order to benefit from the same regime as operating companies, the holding company must be "animating". In addition to managing a portfolio of holdings, the activity of a holding company is to actively participate in the management of its group's policy and in the control of its subsidiaries carrying out an operational activity and, on a purely internal basis, to provide its subsidiaries with specific services (administrative, accounting).

According to the administrative doctrine, the animating quality of a holding company must be assessed at the conclusion of the agreement and throughout the duration of the retention commitments. This means that a holding company must remain a facilitator throughout the duration of the commitments.

The Court of Cassation overturns the decision of the Court of Appeal

By a decision of the Court of Cassation in its commercial chamber of May 25, 2022 n°19-25513 the judges have decided to adopt a new position on holding companies engaged in a Pacte Dutreil. In this case, a holding company had lost its status of animator before the end of the retention commitments, and the tax authorities had therefore concluded that the loss of this status had as a consequence the suppression of the partial exemption of the Dutreil Pact. The Court, in its response, decided to censure the administrative doctrine and stated that a holding company must remain an animating holding until the transfer of the shares and not afterwards, thus the company in question fulfilled the conditions of the Pact. This ruling provides a flexibility that was missing from the administrative doctrine.

The Dutreil pact is a transmission mechanism that allows the company director to benefit from a partial exemption from transfer duties. This pact can be combined with an Owner Buy Out in order to free up liquidity before the final transfer of the company. Do not hesitate to consult our file on the OBO.

It is important to surround yourself with a professional to carry out the transfer of your professional assets, Wealth A7 can assist you in this transition.