The deferral of taxation and the transfer of assets are two schemes that are well known to entrepreneurs and their advisers. They enable the deferral of capital gains tax when companies undergo restructuring via holding companies. However, these mechanisms are now being subjected to scrutiny in the context of reforms aimed at reducing tax loopholes. Here is some advice from the experts at AURIS Finance, a consultancy specialising in mergers and acquisitions.
There are two mechanisms for deferring capital gains tax on restructurings via holding companies.
Tax deferral
The deferral of taxation is a tax mechanism that makes it possible to defer taxation on capital gains generated when shares are transferred to a holding company, provided that the latter is not controlled by the acquirer. In practice, an investor contributes their shares in company A to company B, in exchange for shares in B. At the time of the transfer, the capital gain is not registered or taxed, but taxation is suspended until the shares are subsequently sold. To ensure the operational effectiveness of this mechanism, it is essential that the contributor holds less than 50% of the voting rights or shares in the company subsequent to their contribution.
Preparing a transfer
Conversely, the tax deferral with transfer of assets applies when the shares are transferred to a holding company controlled by the transferor. In such cases, the capital gain is calculated and recorded at the time of the transfer, but taxation is deferred until a triggering event (which may be the sale of the shares or their transfer free of charge). This mechanism, which has certain tax advantages, is particularly useful for estate planning and business transfer purposes.
For example, if an entrepreneur owns 100% of a tech company valued at €5 million, he can set up a holding company and contribute his shares before selling them. The holding company then sells the shares for €5 million. Thanks to the transfer of assets scheme, the entrepreneur can defer taxation on the capital gain (€4 million), provided that he reinvests at least 60% of the proceeds in eligible assets within two years: SMEs or private equity funds. Unlike the regular tax deferral, which is granted automatically, the benefit of the tax deferral with transfer of assets is conditional on the reinvestment into an ‘economic’ activity of part of the proceeds from the sale of the shares within two years.
Real estate under scrutiny by tax authorities
Due to the deterioration of public finances, these two schemes are currently under review. While not being challenged directly, they may be subject to revision. First up: the acquisition of real estate assets as part of a transfer of assets. During the initial review of the draft Finance Bill for 2025, an amendment adopted by the National Assembly’s Finance Committee provided for the exclusion of the management of all real estate and hotel services ‘in order to encourage reinvestment in the real economy’. Although the amendment was not retained, it could be reintroduced in future Finance Bills. The French tax authorities consider that the acquisition of property for letting does not constitute an ‘economic’ activity when it is intended to develop private assets.
Our experts at your service
The sale and transfer of a company requires careful consideration and planning. Given the complexity of tax issues, business owners are advised to seek professional advice. At AURIS Finance, our team of specialised experts is well-versed in various industry sectors, allowing us to provide tailored solutions for the seamless transfer of your business.
