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 Partial transfer of assets "APA"
A partial transfer of assets, or "PTA", is a transaction whereby company A transfers part of its assets to a new or existing company B, which may be French or foreign (Cross border reorganization).In return for this contribution, B receives shares from A and, if necessary, cash up to a maximum of 10% of the nominal value of the shares received. A PTA does not mean that A or B ceases to exist.
PTAs make it possible to affiliate an activity, to combine identical or complementary activities or even to merge competing companies' activities.
According to standard tax rules, the PTA is considered for tax purposes as a sale of assets followed by a transfer to the receiving company (taxation of appreciation, credit balances and reserves - registration fee, capital duty and/or distribution fee).
To avoid these very heavy tax cost, companies subject to corporate tax that are transferring a complete field of activity may opt for the tax free reorganization rules, as far as corporate tax and/or registration fees are concerned.
A complete, autonomous branch of activity means a set of assets and liabilities which can operate independently or also a shareholding of 30% to 50%, and in some cases even less, in the capital of a company that is subject to corporate tax.
If the transfer does not involve a complete, autonomous field of activity or if there is some doubt, a company may ask to benefit from the special taxation system under the terms of a prior "Ruling".
Under a prior ruling "Ruling", a partial transfer of assets may be made to a foreign company. A transfer from a foreign company to a French company may also require an approval in certain circumstances.
A prerequisite to benefit of the tax free regime is that the transferring company undertakes to keep for 3 years the shares received in payment for the transfer and, if necessary, to calculate the appreciation resulting from the transfer of these shares in relation to the transferred assets' tax value in its own books.
If the transfer benefit of the tax free reorganization rules, the net transfer appreciation, the credit balances and the reserves transferred are not taxable. Shares for shares transfer are only liable to a fixed registration fee of 230 euros.
A prior ruling "Ruling" is necessary to transfer losses. Any "carry back" receivable is transferred automatically.
Subject to a prior ruling, it is also possible to allocate free of charge, the shares received from the company benefiting of the transfers to the shareholders of the transferring company, within one year of the date of transfer. According to an administrative guideline (13 D-1-03), the French tax authorities indicated that these rules may also benefit to a partial transfer of assets between foreign companies followed by a distribution to French resident shareholders However no ruling will be granted for partial transfer of assets resulting in a separation of the business activity from the business estate.
French tax authorities issued additional guidelines 13 D-1-06 introducing more flexibility in the allocation of shares to the shareholders of the transferring entity within one year of the date of transfer of a complete branch of activity made according to the favorable tax regime rules.
According to article 115-2 of the French tax code « CGI », such transfer is not considered as taxable distribution of income when the transferring company gets a prior approval of the French tax authorities. This approval is granted when the 3 following tests are cumulatively met:
- Transaction eligible under French favorable reorganization regime of art. 210 A CGI
- Valid economic justification
- Main objective is not tax fraud or tax evasion
Tax authorities also request that determined shareholders of the transferring entity commit to hold the shares for at least 3 years.
The new guidelines give more flexibility and provide additional exceptions to the 3 years holding requirement.
In some circumstances it is possible to carry out a partial transfer of assets retrospectively.
- The special taxation system is granted only if several conditions are satisfied (statement and register for monitoring appreciation, progressive reintegration of appreciation into depreciable assets etc.). A partial transfer of assets carries a certain number of consequences, obligations and opportunities with regard to VAT, business tax, income tax, miscellaneous taxes and employee shareholding.
Guidelines 3 A-6-06 about the VAT exemption apply to delivery of goods and services between VAT taxpayers occurring in case of transfer for cash, for no consideration or share of share transfer of a business, or a branch of a business, applicable as of January 1st, 2006.
This new VAT exemption applies to delivery of goods, supply of services, transaction VAT taxable on margin and transaction dependent of real estate VAT.
According to article 210 B CGI, when a company sells the shares received in remuneration of the transfer of an ongoing business benefiting of the tax free regime, the related gain and reserves become taxable.
In a decision dated July 13, 2007, the French Supreme administrative court judged that the capital gain and the reserves are taxable the year of the sale of the shares, at the rate applicable to this Fiscal Year, and not, as claimed by the French tax authorities, the year of the contribution, at the tax rate applicable to this year.
This decision is favourable because of the decrease of the CIT rate and because of the exemption of the capital gain on participating shares.
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