January 20, 2012
As from January 1st, 2012, the French Finance Act has significantly increased the transfer tax applicable to the transfer of shares of non-real estate companies.
Before the reform, transfer tax at the rate of 3% was due on the sale of shares of French companies, with the tax capped at € 5,000 per transfer with respect to the transfer of shares in sociétés par action (i.e. mainly société anonyme (SA), société par action simplifiée (SAS), and société en commandite par action). Moreover, as far as listed shares were concerned, no transfer tax was due if there was a deed, provided that it was executed outside of France.
Operation of New Law
Investors should be aware of the following practical consequences:
When applicable, the transfer tax is now calculated as follow:
When the transfer of the shares of a French company is realized through a deed executed outside of France, a tax credit is granted for any transfer taxes effectively paid in the state of registration or the state of residence of each party.
The transfer tax does not apply to instruments other than shares, such as e.g. bonds or warrants. There are also several exemptions applicable to e.g. intragroup transfers, share buy-back or share capital increase.
When due, the seller and the purchaser are jointly liable for the payment of the transfer tax to the French tax authorities.
The reform raises many unanticipated uncertainties. The French tax authorities have been asked to urgently clarify such issues, which include:
The statement of practice answering these questions should be issued in the course of February 2012.
The adverse tax consequences of this reform, which has been passed by the French Parliament despite the opposition of the French Government, could also lead the French Government to ask the Parliament to amend it to be less strict in the coming weeks.
As a related topic, President Sarkozy has announced his desire to have the French Parliament adopt a "Tobin tax" which would apply to financial transactions in the course of 2012. The draft bill of this tax should be presented in the course of February 2012.
 The transfer of real estate companies is not affected by the reform and remains subject to a non-capped 5% tax.
The transfer of shares that are considered "parts sociales", a concept mainly relevant for the société à responsabilité limitée (SARL), société civile (SC) and société en nom collectif (SNC), is not affected by the reform and remains subject to a non-capped 3% tax. Before the adoption of the U.S. entity classification regulations in 1997, many French entities were formed by U.S. investors as SARLs in order to retain the flexibility for partnership tax treatment in the U.S. The combination of additional forms of French entities such as the SAS and the more flexible entity classification regulations have reduced the use of SARLs, and thus reduced the possibility of enhanced transfer taxes, where U.S. investors are involved.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you work or any of the following:
Jérôme Delaurière – Paris (+33 1 56 43 13 00, firstname.lastname@example.org)
Nicholas Aleksander – London (+44 20 7071 4232, email@example.com)
Hans Martin Schmid – Munich (+49 89 189 33 110, firstname.lastname@example.org)
Jeffrey M. Trinklein – New York (+1 212-351-2344, email@example.com)
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