• Tax consolidation and merger
  • Situation of the absorbing company
  • Distribution of the dividends of the absorbed company

Following a merger between companies distinctly liable for corporate income tax, the absorbing company is allowed to distribute, exempt from additional tax on distributions ("precompte mobilier"), the dividends of the absorbed company which were subject to corporate income tax at the full rate concerning tax years closed for five years maximum at the time of the distribution.

According to the French Tax Authorities (letter from the SLF, Service of the Tax Rules, dated April 23, 1996), this solution might be transposed, in case of merger between companies members of a tax consolidated group, for the application of the mechanism provided by Article 223 H of the French General Tax Code, according to which the dividends paid by a subsidiary to another company of the group do not give rise to the "precompte mobilier" (and have no accompanying tax credit "avoir fiscal"), when they are withheld from incomes or long term capital gains realised at any time of the period during which the distributing company is member of the group.

The absorbing company of the group, representing the rights and obligations of the absorbed company, is therefore authorized to distribute to other companies of the group, exempt from "precompte" (but without issuing any "avoir fiscal"), the dividends realised by the absorbed company within the period during which it was member of the group.

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 33/78.63.72.35, Joel Fischer on 33/78.63.72.58, or Laurent Borey on 33/(1).55 61 10 10 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.