The end of the year traditionally brings a batch of reforms or tax modifications more or less substantial. The 1995 finance law and amending finance law for 1994 are no exceptions to this rule. It is interesting to briefly review the principal changes brought about in the financial and banking domains.
Finance Law 1995
Divisions of companies
Up to now, divisions of companies could benefit from the favourable merger tax regime on condition of prior ministerial approval (Article 210 B of the French General Tax Code). With effect from 1 January 1995, approval is no longer necessary in cases of transactions involving at least two complete branches of activity, each company benefitting from contributions receiving at least one of these branches.
The absence of approval is conditional on the agreement of the partners of the company divided, at the time of the division, to hold for five years the shares relating to the contribution which have been proportionately distributed to them according to the capital held. This obligation is not, however, required for partners holding shares representing in total less than 5 % of the capital. The new provisions also define the tax value of the shares of each company benefiting from contributions which are held by the shareholders of the former divided society. They also set out the declaratory obligations of the benefiting companies.
Share saving plans (PEA)
From 1 January 1995, assuming that all other conditions are satisfied, all non-quoted shares are eligible for share savings plans (PEA) and not only those subscribed for at the time of setting up or of an increase in capital in cash.
Long term capital gains (Article 219 of the French General Tax Code):
The rate of taxation of long term capital gains for companies liable to corporate income tax is increased to 19 % for capital gains realised during periods opening with effect from 1 January 1994.
The application of the long term capital gains regime is furthermore limited since sales of portfolio investment securities effected during periods opening with effect from 1 January 1994 are now excluded. The long term capital gains regime is therefore limited to sales of securities held for for long term purposes (as opposed to short term investments), to units of risky investment funds fulfilling the conditions of Article 163 quinquies B of the French General Tax Code, or to shares of venture capital companies fulfilling the conditions of Article 1 of the law of 11 July 1985 and held for at least five years.
Individuals' capital gains (Article 160 of the French General Tax Code)
The new drafting of the Article states that capital losses on the sale of shares by individuals holding at least 25 % of the capital of a company liable to corporate income tax may in future be offset, exclusively, against capital gains of the same kind realised during the same year or in the following 5 years.
Sale of shares of non-distributing unit trusts
A government amendment extends until 30 June 1995 the capital gains exemption for sales of shares in non-distributing monetary or debt UCITS (French unit trusts). This exemption is on condition of reinvestment, within two months, of the sale proceeds in real estate, reinvestment in the equity capital of a company being excluded in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. For additional information contact Claire Acard on +33 (1) 55 61 10 10. The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar.
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