The partners of a real estate partnership were to pay up their contributions in cash. They decided on a capital increase at a General Meeting of Shareholders, covered by the contribution of a real property acquired by them for the same amount as the increase, in joint ownership, followed by a capital decrease by means of the cancelling of the shares constituting the initial capital (not paid-up).

In a decision dated October 3, 1995, the Cour de cassation (Supreme Court) upheld the decision made by the Court of Arras which had found that the simultaneity of the transactions demonstrated that the partners did not intend to make a true capital increase. Therefore, the transaction constituted the settlement of a debt by a payment in kind subject to transfer duties rather than a capital contribution. Such a reclassification which is based on the non-binding nature of transactions considered as fictitious on the authorities, usually falls within the scope of the specific abuse of law procedure. The decision does not, however, report the implementation of this procedure. The reassessment procedure could therefore have been challenged on these grounds, but it seems that this was not attempted by the taxpayer concerned.

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