Business

The Dutreil pact is a mechanism that allows you to benefit from a tax advantage when selling a company.

Who can benefit?

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

Why?

This regime allows for a 75% exemption on transfer duties resulting from the transfer of securities, whether it is a free transfer or as part of an inheritance. This exemption applies when the transfer is made in full ownership and/or in dismemberment. In addition, a 50% deduction of gift tax in the case of a donation of shares by a donor under 70 years of age can be combined with the scheme.

The conditions of the exemption

Conditions before the transfer

- Operational activity: article 787 B of the General Tax Code provides that the exemption is only available to companies whose activity is operational. The activities of construction and sale of buildings or property dealers are eligible.

- Collective commitment: in order to benefit from the exemption, the shares concerned must be subject to a collective commitment to retain them for a minimum period of two years. In concrete terms, the shares must be held for a minimum period of two years and the transfer must take place during these two years.

In the case of securities constituting joint property: in this case, it will be the partner spouse or one of the two spouses if they are both qualified, who will have the capacity to sign the commitment.

- Minimum threshold: the retention commitments must concern a certain percentage of the shares of the company concerned, this threshold differs according to whether the company is listed or not.

Case of dismembered donations: the exemption is likely to apply. In this case, the commitment must be concluded between the usufructuary (in practice the donor) and the bare owner of the shares. In case of reunion of the usufruct and the bare ownership, the collective commitment persists for the owner of the property keeping the initial date of the commitment.

Conditions after the transfer

- Continuation of the commitment: once the transfer has taken place, the heirs or donees must continue to hold the securities for which they wish to benefit from the exemption.

- Individual commitment of the heirs or donees: at the end of this first commitment, the heirs or donees must in turn commit to keep the transmitted shares for a period of four years.

Non-compliance: as the commitment is individual, non-compliance by one of the donees does not call into question the exemption for the other parties.

- Exercise of a management function: one of the beneficiaries having made the individual commitment or one of the signatories of the collective commitment must exercise in the company his main activity or a management function during the duration of the commitment and for a period of three years as from the transmission.

Focus on holding companies

Holding companies can indeed benefit from the Dutreil regime, however the conditions are strict.

   - The case of group holding companies

Group holding companies can benefit from the exemption subject to the conditions we have just seen. The main problem of holding companies appears when the holding company is mixed, the law imposes that the activity of animation of group is preponderant. 

The main problem of holding companies arises when the holding company is mixed, the law requires that the activity of group animation is predominant. A holding company animating a group has for activity, in addition to the management of a portfolio of participations: the active participation in the conduct of the policy of its group and in the control of its subsidiaries exercising an operational activity and on a purely internal basis the supply to its subsidiaries of specific services (administrative, accounting).

As the holding company regime is complex, our assets consultants can evaluate the balance sheet and the situation of your company so that you can fully benefit from this exemption.

  - The system of interposed companies

The system of interposed companies makes it possible to get around the problem of mixed holding companies. Indeed, if the qualification of holding company with a preponderant activity of animation seems too fragile, the qualification of interposed company can allow to benefit from the regime. However, the law limits the number of interposed companies to two.

In this case, the various conditions of the Dutreil regime must be fulfilled, in particular the undertaking to retain may now be given by a holding company. The shareholdings at each level of interposition must remain fixed for the duration of the various commitments.

On the other hand, if the interposed companies regime allows you to benefit from the Dutreil exemption, the latter is limited and subject to several variables. Our wealth advisors can assist you in this reflection.

Gift-sharing and Family Buy Out

The case of the FBO can be encountered when a donor wishes, for example, that the only transferee and beneficiary be a grandchild. In this case, it is necessary to compensate the other heirs. Most often, the beneficiary will have to contribute his or her shares to a holding company, which will have to borrow in order to compensate the heirs according to the different strains. If the holding company is subject to corporate income tax, it will be able to repay its bank debt with the help of the dividend income with an option for the parent-daughter regime.

The conditions are in particular that the assets of the holding company must be composed of more than 50% of participations in the company eligible to the Dutreil pact. The capital and voting rights of the holding company must be held by persons subject to the commitments up to 75%. Finally, the holding company and the partners must commit to keep their respective shares until the end of the commitments.