The French Administrative Supreme Court (Conseil d'Etat) decided on 8 July 1992 in the Gardet case that the price paid for the purchase of its own stock by a corporation, followed by a decrease in capital, constitutes a gain as defined in Article 161 of the French General Tax Code, as opposed to a dividend, and that the shareholder can therefore not benefit from an attached tax credit. The Court did not specify if such gain could benefit from the reduced tax applicable to capital gains.
The French Tax Authorities have thus specified (Réponse Ministérielle Chollet, Assemblée Nationale, 5 December 1994) that the gain realised by a shareholder on the purchase by a corporation of its own stock, followed by a decrease in capital, is securities income liable to personal income tax at progressive rates (i.e. up to 56,8 %). This gain cannot therefore benefit from the reduced tax rate applicable to capital gains (19,4 %, social contributions included). This means that the gain realised by a shareholder upon a corporation's purchase of its own stock which is followed by a decrease in capital will be taxed as securities income without benefiting from a tax credit : quite an unfavourable result for shareholders !
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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