Draft of Finance Bill for 1996: first reading at the Senate

A new measure has been voted by the Senate regarding the French tax consolidation regime. A supplementary article specifies that the neutralisation system of sale of inter-company fixed assets is also applicable to sales of stockholdings excluded from the regime of long term capital gains and capital losses. This parliamentary measure accepted by the government would apply, for the determination of the global result of tax years open as of January 1st, 1994, i.e. date of application of the exclusion, and thus retroactively.

Draft of rectified Finance Bill for 1995: Council of Ministers

Main articles

1. Taxation of the new stock market

A "new stock market" should be set up in February 1996. It would concern European companies having a development project to finance and wishing to benefit from the stock market in order to accelerate their growth: young companies having a project to finance, innovating high technology companies, companies with a strong growth potential ...

In order to promote the development of this new stock market, which will play an essential role in the financing of the French small and medium-size companies with a strong growth potential, the two following inducing tax measures are proposed:

- Exemption of tax on stock exchange operations

The introduction of a listed security of a regulated market would be tax exempted on stock exchange operations.

The same would apply to operations of purchase and sale of shares, as long as the turnover or the total of the balance-sheet of the company issuing the shares, does not exceed MF 500, in average, during the last two tax years.

This measure would apply to operations realised as of January 24, 1996.

- Eligibility of the shares of the new market to the favourable tax regime of venture capital

Venture capital companies (VCC) benefit, under some conditions, from an exemption on corporate income tax. Individual shareholders of venture capital companies or holders of shares of venture investment funds (VIF) may benefit from a tax exemption concerning some distributions of portfolio products, especially when these individuals keep their shares during at least five years. Companies liable to corporate income tax and members of a venture capital companies may take advantage of the taxation regime of long term capital gains (tax rate reduced by 19%) concerning the distributions realised by venture capital companies and withdrawn on portfolio capital gains.

These tax advantages are particularly subject to the condition that the VCC and the VIF have to respect a investment quota of at least 50% in non listed shares of companies having their registered office within the European Union.

The shares of the new market which would be set up in Paris would, under certain conditions, be eligible to the 50% quota of the VCC and VIF. The measure thus consists in the extension of the tax privileged regime of venture capital to listed shares on the new market.

This measure would apply to tax years open as of January 1st, 1996.

Of course, the shares listed on this market would benefit from the same advantages as those which are presently proposed to shares investments. These shares will especially have the possibility to be part of the composition of shares savings plans and thus benefit from the tax advantages linked to the latter.

2. Real estate taxation: specific regime of the estate agents

- Postponement of the resale time-limit

According to article 1115 of the French General Tax Code, estate agents having acquired a building (or a goodwill) in exemption of transfer duties have to resale it within a time-limit of four years, exceptionally extended to December 31, 1996 for goods acquired before January 1st, 1993.

This exceptional time-limit would be postponed to December 31, 1998. Moreover, the taxation due in case of resale within 3 years following the termination of this time-limit would be decreased: it would not be accompanied with the supplementary duty of 6% and the reminder of duties would be limited to 25% of their amount in 1999, 50% in 2000 and 75% in 2001.

- Contributions to companies

As of January 1st, 1996, contributions would not be assimilated to sales for the application of article 1115 of the French General Tax Code.

The specification introduced in article 1115 of the French General Tax Code would confirm, for the future, the administrative doctrine, which allows to refer to the contrary case law of the Supreme Court (Cassation commerciale, March 1st, 1994) for contributions realised up to December 31, 1995.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances.

For additional information contact Claire Acard on 33/(1)/55 61 10 10, Lionel Benant on 33/ or Joel Fischer on 33/ or enter text search: "ARCHIBALD ANDERSEN Profile". The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.