Current Tax Developments - Increase Followed By A Decrease In Capital

A company holds a receivable on a subsidiary which is in a difficult financial position. The subsidiary decides to make a capital increase, fully subscribed by the parent company by offsetting its receivable, before immediately reducing its capital to the legal minimum. This two-stage adjustment in the share capital of the subsidiary, which is known as a 'coup d'accordeon', has been considered by the Administration as an abuse of law, since, in its view, it resulted in the cancellation of a receivable. The administrative court of Versailles rejected the argument put forward by the Administration in a judgment dated July 4, 1995. Indeed, after establishing that the burden of proof lay with the Administration given the absence of an opinion from the Consultative Committee for the repression of abuses of law, the court ruled that, firstly, the resolution of the company's general shareholders' meeting was not of a fictitious nature, and, secondly, that the company's main objective was not to avoid tax, but to comply with commercial law.

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