Application of legal and accounting standards by the French tax judge, clarifications regarding the notions of “transfer” (cession) and “securities representing participating interests” (titres de participation) within the meaning of Article 39 quaterdecies, 2 bis, of the French Tax Code

Written by Yves Rutschmann, Victor Camatta, Agnès Piniot and François Brenner

Published in the LexisNexis Revue de Droit Fiscal

“Decision – The Conseil d’État clarified the scope of application of Article 39 quaterdecies, 2 bis, stating that the cancellation of securities held by a company following a restructuring transaction entailing the universal transfer to it of all the assets and liabilities of the company whose securities are cancelled constitutes a “transfer” (cession) within the meaning of this provision. Pursuant to the opinion issued by the French Accounting Standards Authority (Autorité des Normes Comptables), the Conseil d’État also ruled that securities issued upon recapitalisations made prior to such restructuring transactions constitute “securities representing participating interests” (titres de participation) within the meaning of that provision.

Impact – The Conseil d’État intentionally limited the scope of its decision to the specific situation of the case referred to it, thereby leaving several questions unanswered. Regarding the concept of “transfer”, the Conseil d’État expressly reserves the case of voluntary liquidation and raised the question of its transposition to other regimes such as that provided for in Article 219, I, a septies, of the French Tax Code. Regarding qualification of the securities, the ruling does not clarify the rules applicable in the event of recapitalisation prior to a transfer to a third party.