Tax deferral via asset transfer: maximum reinvestment period

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Capital contributions: reinvestment and tax deferral

[The “apport-cession” scheme (https://private-corner.eu/newsroom/guides/apport-cession-150-0-b-ter) is a tax mechanism that enables a company director or investor to defer taxation on the capital gain realized when he or she transfers shares in his or her company to a holding company. In concrete terms, instead of selling his shares directly and being immediately taxed on the capital gain, the entrepreneur first transfers them to a holding company he controls. This operation temporarily “blocks” taxation, provided that the holding company retains the shares for a certain period and reinvests the proceeds of their resale according to precise rules.

This mechanism is designed to facilitate asset reorganization or business transfers, without creating an immediate tax brake. It is particularly useful for :

• Prepare the sale of a company under the right conditions,

• Reinvest the proceeds in the real economy,

• Organize the holding of shares via a holding company,

• Optimize taxation with a view to patrimony or inheritance.

How does the scheme work?

The contribution-asset scheme is based on two main stages.

1. Transferring shares to a holding company

First, the executive contributes the shares in his company (for example, a small business he has set up) to a holding company he controls. This contribution normally triggers a capital gain, but thanks to the scheme, its taxation is deferred: it is not cancelled, but deferred.

2. Subsequent sale by the holding company

The holding company may then decide to sell the shares. If this sale takes place quickly (within three years), then to maintain the tax deferral, the holding company must reinvest at least 60% of the proceeds of the sale in eligible economic activities such as SMEs, or a private equity fund (FPCI), for example. If this condition is met, the tax is deferred. On the other hand, if the reinvestment does not take place on time, or if the entrepreneur subsequently sells the holding company's shares, the deferral ends and the tax becomes due.

Conditions for eligible reinvestment in an FPCI :

For reinvestment of the proceeds of sale in an FPCI (Fonds Professionnel de Capital Investissement) is eligible for continued tax deferral under the capital transfer scheme (article 150-0 B ter of the CGI), several strict conditions must be met:

1. Reinvestment deadline The reinvestment must be made within two years of the sale of the shares transferred to the holding company.

2. Amount reinvested At least 60% of the sale proceeds (net of expenses) must be reinvested in an eligible economic activity.

3. Nature of the FPCI The FPCI must meet the following eligibility criteria:

4. It must be approved by the AMF or managed by an approved management company.

• It must invest mainly in operational, unlisted companies (SMEs or ETIs) engaged in commercial, craft, agricultural, industrial or professional activities.

• It must meet an investment quota in unlisted securities (generally at least 50%), in companies headquartered in a member state of the European Union or the European Economic Area.

1. Arm's length FPCIs must not invest in companies affiliated with the contributor or the holding company, in order to avoid any abusive reintegration into their own economic group.

2. Holding period The reinvestment must be held for at least 5 years, except in exceptional cases provided for by law (notably if the FPCI redistributes its assets in accordance with regulations).

These conditions are governed by the tax authorities: any breach can result in the tax deferral being called into question, with retroactive effect. It is therefore essential to enlist the help of professionals to ensure the security of the asset transfer arrangement.

If you have any questions about this scheme, codified in article 150-0 B ter of the CGI, please do not hesitate to contact us:

Private Corner AMF approval GP-20000038 161 rue du Faubourg Saint-Honoré, 75008 Paris +33 (0)1 83 75 66 93 contact@private-corner.eu