An instruction dated June 29, 1995 (4 H-10-95) has recently commented on the provisions of Article 37 of the 1994 Finance Act, broadening the conditions of application of the parent-subsidiary tax status. In order to benefit from this treatment, a company having elected for it must prove that it has undertaken to keep the shares of its subsidiary for a period of at least two years for shares not subscribed upon their issue. In the event of a breach of such an undertaking, the income derived from the participation in question is subject to the normal corporate tax rate. Article 37 of the amended finance act of 1994 excludes certain restructuring operations, subject to favorable tax treatment, from transfers liable to result in challenging the parent-subsidiary tax status. The following are therefore no longer considered as resulting in an interruption of the period of holding of the shares concerned by the undertaking to keep the shares for two years: the contribution of shares under the special tax treatment applicable to mergers, the exchanges of shares made by the parent company of a company which has recently been absorbed or which has made a partial contribution of assets or made by the parent company in the event of a public offer of exchange, the cancellation of the shares following a merger between the parent company and its subsidiary, which is subject to the parent-subsidiary tax treatment.
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