The tax regime for French listed real
estate companies
(Sociétés d'Investissements
Immobiliers Cotées, ‘‘SIICs’’)
Further information
If you would like further information on the tax
regime for French listed real estate
companies, please contact either of the
following or the persons with whom you
usually deal.
Contact
Hervé Israël
herve.israel@lovells.com
Frédéric Moréas
frederic.moreas@lovells.com
This note is written as a general guide only. It
should not be relied upon as a substitute for
specific legal advice.
Contents
INTRODUCTION
1
APPLICATION CONDITIONS OF THE REGIME
2
TAX CONSEQUENCS OF OPTING TO JOIN THE REGIME
4
CONTINUATION OF THE REGIME IN THE EVENT OF A MERGER OR AN ACQUISITION BETWEEN SIICS
8
PREFERENTIAL REGIMES IN THE EVENT OF DISPOSAL OF CERTAIN REAL ESTATE ASSETS TO A SIIC
9
DECLARATION OBLIGATIONS AND SANCTION FOR BREACH OF APPLICATION CONDITIONS
OF THE REGIME
11
ANNEXE
13
Lovells Tax
1
Introduction
The purpose of this note is to explain
the tax regime applicable to Sociétés
d'Investissements Immobiliers Cotées
(listed real estate companies, ‘‘SIIC’’),
following the coming into force of the
2009 Amending Finance Act, which
extensively amends it.
The regime aims to encourage French
companies, as well as international
businesses, to invest in the French real
estate market by creating opportunities
for investors operating in this market.
The principal characteristic of the
regime is that it exempts SIICs from
French corporate income tax (CIT) on
rental payments they receive and on
capital gains resulting from the sale of
real estate assets. This revenue is
taxable only at the level of their
shareholders.
In exchange for this exemption from
CIT, SIICs are required to distribute
85% of their tax-exempt profits from
rental income and 50% of their taxexempt profits from the sale of real
estate or shares in subsidiaries
benefiting from the SIIC tax regime or
subject to the tax regime for
partnerships.
The SIIC regime, codified in articles 208
C, 208 C bis and 208 C ter of the
French Tax Code, was first introduced
by the 2003 French Finance Act,
completed by a decree of 11 July 2003.
Guidelines issued by the tax authorities
on 25 September 2003 provided further
details on the regime 1 .
The regime was subsequently amended
by the 2005 Finance Act, which (i)
extended the CIT exemption to profits
from the sub-letting of buildings subject
to a finance lease or the assignment of
rights under a real estate finance lease,
and (ii) created a specific regime with
the aim of neutralising the effect of
restructurings involving SIICs and their
subsidiaries under the same regime.
The 2005 Finance Act and the 2005
Amending Finance Act also introduced
1
Administrative guideline 25 September 2003, 4
H-5-03
a preferential tax system (codified in
article 210 E of the French Tax Code)
for sales of real estate or rights under a
real estate finance lease by companies
subject to CIT to a SIIC.
The 2006 Amending Finance Act
substantially modified the SIIC regime
(i) by making its application conditional
on compliance with new conditions
intended in particular to ensure wider
distribution of the capital of these
companies among the general public,
(ii) while in many ways relaxing it (in
particular by opening it up to
subsidiaries of more than one SIIC,
extending the CIT exemption to profits
on lettings and assignments by holders
of certain real estate title rights, and
creating a sort of new "parent company
- subsidiary" regime exempting
distributions of dividends between two
SIICs from CIT).
The 2008 Finance Act extended the CIT
exemption under certain conditions to
dividends received from a special
category of open-ended investment
companies with mainly real estate
assets named "sociétés de placement à
prépondérance immobilière à capital
variable" (SPPICAV) or from foreign
(non-French) companies having an
equivalent status to that of SIICs.
Finally the 2009 Finance Act amended
the SIIC regime by (i) extending the CIT
exemption to rental income arising from
the sub-letting of real estate whose use
has been temporarily granted by the
French State, (ii) and by extending the
period in which the dilution threshold
condition has to be satisfied as
introduced by the 2006 Amending
Finance Act and (iii) by specifying the
rules for exiting and returning to the
exemption regime if the dilution
threshold condition is exceeded.
Lovells Tax
2
Application conditions of the regime
Any company wishing to benefit from
the SIIC regime must formally opt for it
and satisfy the conditions for application
of this regime.
APPLICATION CONDITIONS
General conditions for access to the
SIIC regime
To be eligible for the SIIC regime, a
company must satisfy all of the
following conditions as of the first day of
the financial year under way at the time
of opting for this regime, and continue
to satisfy them in an uninterrupted
fashion throughout each financial year
in which the regime applies:
•
be incorporated as a société par
actions,
•
be listed on a French regulated
stock exchange (First Market,
2
Second Market or New Market) ,
•
have a share capital of at least 15
million euros, and
•
have as its main corporate purpose
the acquisition or construction of
real estate assets for the purposes
of renting or the direct or indirect
holding of interests in legal entities
with an identical corporate purpose
and subject either to the tax regime
for partnerships or to CIT.
However, the tax authorities have
specified that SIICs may carry out
ancillary activities that do not
correspond to their main corporate
purpose, provided they comply
continuously with the following two
ratios for the entire period of application
of the SIIC regime:
•
receivables under real estate
finance leases must not constitute
more than 50% of the assets of the
SIIC, and
•
the value of assets allocated to
these ancillary activities must not be
2
The tax administration has said that a company
that is already listed on a foreign stock market
may benefit from the SIIC regime on condition it
is also listed on a French regulated market.
greater than 20% of the gross value
of the SIIC’s assets.
the regime but makes the SIIC liable
to CIT in the normal way for the
financial years in which the cap is
exceeded (see hereafter).
Revenues from ancillary activities
remain liable to CIT in the normal
conditions (at a rate of 33.33%) and are
not subject to the distribution
requirements of the SIIC regime.
However, if this condition ceases to
be satisfied during a financial year
following a takeover, public
exchange offer, merger, demerger,
dissolution - confusions de
patrimoine (a simplified type of
merger between parent companies
and their wholly owned subsidiaries)
or conversion or repayment of
bonds in shares, it will nonetheless
be considered to have been
satisfied if the situation is
regularised at the latest by the
expiry date of the period for filing the
declaration of the results of the
financial year in question (that is, 30
April of the following year for
companies whose financial year
coincides with the calendar year,
subject to extensions of time periods
granted by the administration).
The SIIC and its subsidiaries may have
some of their activities outside France.
However, only the activity carried out in
France (holding of real estate or
interests in companies that have the
same corporate purpose as that
required for SIICs) can give access to
the preferential regime. The
shareholders of the SIIC do not have to
be French tax residents.
No specific conditions need be met with
regard to the borrowing capacity of the
SIIC.
Conditions governing the dispersal
of the SIIC's share capital
Following the 2006 Amending Finance
Act, the following conditions for
dispersal of the share capital must also
be complied with ):
•
•
at least 60% of the capital of the
company must not be held, directly
or indirectly, by one or more
shareholders acting in concert
(unless the shareholders are
themselves SIICs). The same must
be true for voting rights at the SIIC's
meetings of shareholders.
This condition must be continuously
met throughout all financial years in
which the regime applies. Therefore,
it applies both to companies that
joined the SIIC regime in 2007 as
well as those that were already
benefiting from it. For companies
opting for the SIIC regime in 2007 or
later, this condition must be met at
the time they become subject to the
regime. Companies that were
already subject to the regime will
only have to comply as from
1 January 2009. The 2009 Finance
Act has extended the prescribed
period to 1 January 2010.
Exceeding the 60% cap during a
financial year does not put an end to
at least 15% of the capital and
voting rights of the company must
be held by persons who individually
hold less than 2%, directly or
indirectly. Compliance with this
condition is required only on the first
day of the financial year of entry to
the SIIC regime and the condition
only applies for financial years
starting on or after 1 January 2007.
Therefore, it only applies to
companies joining the regime in
2007 or later.
Conditions governing access by
subsidiaries of the SIIC to the regime
Among the subsidiaries of the SIIC,
those that are subject to CIT may also
opt for the regime provided they comply
with the following conditions:
•
3
they are at least 95% owned,
directly or indirectly, (i) by a single
SIIC or, for financial years starting
on or after 1 January 2007, (ii)
3
jointly by several SIICs , and
The extension of the scope of the SIIC regime
to subsidiaries common to several SIIC is an
Lovells Tax
•
they have the same corporate
purpose as the SIICs.
These conditions must be satisfied on a
continuing basis throughout each of the
financial years in which the SIIC regime
applies.
Subsidiaries of a SIIC that are subject
to the partnership tax regime may not
opt for the SIIC regime. However, if
their corporate purpose is identical to
that required for SIICs, the lettings, sublettings or disposals of real estate
assets that they carry out are deemed
to be made by their partners to the
extent of their respective percentage
interests.
OPTING FOR THE REGIME
A company that wishes to benefit from
the SIIC regime must notify the relevant
tax service that it has opted for the
regime before the end of the fourth
month of the financial year in relation to
which it wishes to join the regime,
attaching a list of those of its
subsidiaries that are also opting for it.
The preferential regime will then apply
from the first day of the financial year in
relation to which the option has been
exercised.
Furthermore, subsidiaries of the SIIC
that are subject to CIT and also wish to
benefit from the regime must notify the
tax authorities of their option within the
same time limits, providing them with
certain information concerning the SIIC
that controls them.
The option is irrevocable and relates to
all of the real estate assets of the SIIC
and its subsidiaries that have opted for
the SIIC regime, and their interests in
legal entities subject to the partnership
tax regime.
important relaxation of the rules following the
2006 Amending Finance Act.
3
Lovells Tax
4
Tax consequences of opting to join the regime
Listed companies and their subsidiaries
that have opted for the regime are taxed
as follows:
-
EXIT TAX
Upon entry by a company to the SIIC
regime
Opting for the regime causes a
company to cease its activity, to the
extent that it ceases, entirely or
partially, to be subject to CIT as a result
of the option 4 .
Other unrealised capital gains are,
in principle, immediately taxable.
The 19% exit tax is payable in four
yearly instalments, on 15 December
each year starting from the year of
the option.
Cessation of activity has the following
consequences:
•
The first consequence of joining the
regime is immediate taxation at 19%
("exit tax") (previously 16,5% and
increased to 19% as from 1 January
2009 by the 2009 Finance Act) of
unrealised capital gains on real
estate, including the company
headquarters, rights under real
estate finance leases, certain real
estate title rights (the beneficial
ownership of real estate and lessee
rights under a construction lease or
emphyteutic lease (type of long term
lease)), real estate whose use has
been temporarily granted by the
French State, local authorities, or
one of their public entities and
shares in French partnerships with
an identical corporate purpose to
that required for SIICs, held by the
SIIC and its subsidiaries that have
opted for the regime 5 .
Unrealised capital gains on fixed
assets used for ancillary activities
are only taxed at the date they are
realised.
The regime for taxation of equity
shares in subsidiaries subject to CIT
is as follows:
-
4
5
taxation of unrealised capital
gains on equity shares in
subsidiaries that do not opt for
the regime is postponed until
disposal of the shares,
Article 221, 2 of the French Tax Code
Article 219-IV of the French Tax Code
unrealised capital gains on
equity shares in subsidiaries that
do opt for the regime are not
taxed at the level of the SIIC but
at the level of the subsidiary that
opts for the regime. In this
regard, taxation follows the exit
tax mechanism.
•
Moreover, the profits of the financial
year under way at the date of
exercise of the option are in
principle taxed immediately.
However, in practice, there is no
taxation, given that the option takes
effect on the first day of the financial
year during which it is exercised.
In this case, the corresponding
unrealised capital gain must be
reintegrated by the company concerned
into its tax result, in equal parts over a
period of four years.
If the asset in question is disposed of
during this four year period, the balance
of the remaining capital gain to be
integrated must be reintegrated in its
entirety during the financial year of the
disposal.
EXEMPTION REGIME APPLICABLE
TO SIICS AND SUBSIDIARIES THAT
HAVE OPTED FOR THE REGIME
Provided they comply with certain
distribution obligations, a SIIC and each
of its subsidiaries that have validly
opted for the regime benefit from a CIT
exemption on:
•
profits on letting of (i) real estate
held in full ownership or, for financial
years starting on or after 1 January
2007, (ii) real estate operated as
holder of a beneficial interest or
lessee under a construction lease or
emphyteutic lease,
•
profits on the sub-letting of real
estate subject to a finance lease,
•
rental income arising from the subletting of real estate whose use has
been temporarily granted by the
French State. (In practice, this
means real estate that is operated
under a concession contract or long
term occupation contract in the
8
public domain ),
•
capital gains on disposal of the
following assets to persons who are
not "connected" to the transferring
company 9 :
Assets eligible for the SIIC regime
Furthermore, exit tax is also due on
unrealised capital gains on the following
assets when they become eligible for
CIT exemption (resulting from the SIIC
regime) after opting for the regime 6 :
•
real estate held in full ownership,
•
certain real estate title rights, for
financial years starting on or after 1
January 2007 (the beneficial
ownership of a real estate asset and
rights of the lessee in the context of
a construction lease or emphyteutic
7
lease) ,
•
real estate whose use has been
temporarily granted by the French
State, local authorities, or one of
their public entities
•
the rights under a real estate
finance lease (entered into or
acquired since 1 January 2005), and
•
6
7
interests in legal entities subject to
the tax regime for partnerships with
an identical corporate purpose to
that required for SIICs.
Article 208 C ter of the French Tax Code
Following the 2006 Amending Finance Act
-
real estate held in full ownership,
-
certain real estate title rights for
financial years starting on or
after 1 January 2007 (the
8
Following the 2009 Finance Act
9
Capital gains on disposal of such assets to
persons "connected" to the disposal or within
the meaning of article 39-12 of the French Tax
Code are, on the other hand, excluded from the
CIT exemption regime.
Lovells Tax
beneficial ownership of real
estate and lessee rights under a
construction lease or
emphyteutic lease) 10 ,
-
the rights of the lessee under a
real estate finance lease (signed
or acquired since 1 January
2005),
-
interests in legal entities subject
to the partnership tax regime
and with an identical corporate
purpose to that required for
SIICs, and
-
•
shares in subsidiaries subject to
CIT and having opted for the
SIIC regime, and
dividends received by a SIIC from
its subsidiaries subject to the SIIC
regime or by the subsidiaries from
their own subsidiaries that have
opted for the SIIC regime.
5
opted for the regime are subject to CIT
and are therefore not subject to these
distribution obligations.
REGIME FOR DIVIDENDS RECEIVED
BY A SIIC FROM A FOREIGN (NONFRENCH) COMPANY HAVING AN
EQUIVALENT STATUS OR FROM A
SPPICAV.
As a result of the 2008 Finance Act, for
financial years starting as of 31
December 2007, SIICs are exempt from
CIT on dividends received from a
special category of open-ended
investment companies with mainly real
estate assets named "sociétés de
placement à prépondérance
immobilière à capital variable"
(SPPICAV) or from foreign (nonFrench) companies having an
11
equivalent status to that of SIICs ,
providing that:
•
the SIIC benefiting from the
distribution has owned, for at least
two years, interest representing at
least 5% of the share capital of the
distributing company, and
•
the SIIC then re-distributes the
entirety of these dividends during
the financial year following that in
which they were received.
CONDITIONS OF DISTRIBUTION
•
•
•
Exemption from CIT on profits
arising from the letting or sub-letting
of real estate is subject to
distribution of at least 85% of these
profits before the end of the financial
year following that in which they are
generated.
Capital gains on disposals of assets
are exempt on the condition that the
company concerned (the SIIC or its
subsidiary having opted for the
regime) distributes at least 50% of
the corresponding profit before the
end of the second financial year
following that in which it is
generated.
Dividends received from companies
that have opted for the SIIC regime
are also exempt from CIT on the
condition that they are fully
distributed during the financial year
following the one in which they are
received by the SIIC or one of its
subsidiaries that has opted for the
regime.
Only profits on ancillary activities of the
SIIC and its subsidiaries that have
10
Following the 2006 Amending Finance Act
This exemption does not apply to
dividends received by a subsidiary of a
SIIC.
for dividends paid to them by the SIIC
and taken out of exempt income under
13
the SIIC regime . However, unless
legislation specifically provides
otherwise, the "parent companies and
subsidiaries" regime applies to
dividends taken out of the SIIC’s
taxable income, out of capital gains
subject to exit tax or out of income
generated before entry to the SIIC
regime.
The result is that French investors with
an interest in a SIIC are subject to CIT
at the normal rate on dividends
distributed by the SIIC when the
dividends are taken out of profits of the
SIIC’s exempt revenues. Individuals
may only claim a direct tax exemption
on dividends if they hold their shares
through the intermediary of a Plan
d’Epargne en Actions (share savings
plan).
However, for financial years starting on
or after 1 January 2007, dividends paid
by one SIIC to another are exempt from
CIT even if they are taken from the taxexempt profits of the SIIC making the
distribution, provided that:
•
the SIIC receiving the dividends has
held at least 5% of the capital and
voting rights of the distributing SIIC
for at least two years, and
•
the dividends in question are
redistributed in the same time limits
and proportions as those paid within
the group formed by the SIIC and its
subsidiaries and sub-subsidiaries.
REGIME FOR DIVIDENDS
DISTRIBUTED BY A SIIC
Revenue distributed to shareholders
resident in France
Shareholders of a SIIC may not, in
principle, benefit from the CIT
exemption on dividends (up to 95% of
the amount) provided by the "parent
companies and subsidiaries" 12 regime
11
i.e. foreign companies which are exempted
from CIT or an equivalent tax in the state of
effective management and whose activities are
similar to those of a SIIC
12
This measure allows companies subject to CIT
holding for at least two years equity shares
representing at least 5% of the capital of
another company to benefit from a CIT
exemption for 95% of the dividends paid to
them by such company.
Distributions of dividends between two
SIICs currently benefit from a CIT
exemption under conditions virtually
identical to those of the "parent
14
companies and subsidiaries" regime"
for ordinary companies subject to CIT,
which entails a relaxation of the
conditions of application of this
exemption 15 .
13
14
15
Article 145, 6-h of the French Tax Code.
Articles 145 and 216 of the French Tax Code
The requirement for a link of dependency
between the SIIC receiving dividends and the
SIIC making the distribution was withdrawn by
the 2006 Amending Finance Act for financial
years starting on or after 1 January 2007.
Lovells Tax
6
Revenue distributed to shareholders
not resident in France
As SIICs are exempt from CIT on a
portion of their profits when they
distribute dividends taken from that
portion of their profits, they may not
benefit from the exemption from
withholding tax provided by article 119
ter of the French Tax Code (which
transposes the European "parentsubsidiary" directive of 23 July 1990).
On the other hand, the withholding tax
exemption does apply to dividends
16
taken out of taxable results .
Consequently, dividends distributed by
a SIIC to foreign investors are, in
principle, subject to withholding tax at a
rate of 25% according to French tax
law 17 . The rate of withholding tax is,
nonetheless, generally reduced to 15%
(for minority shareholders) or 5% (for
parent companies) by application of
international tax treaties signed by
France.
The withholding tax rates applicable to
distributions of dividends contained in
the main tax treaties are set out in the
Annexe.
apply to distributions taken from the
company’s taxable income), and
•
distributions are made to a
shareholder that is not an individual
that:
-
holds, directly or indirectly, at
least 10% of the rights to
dividends of the SIIC at the time
the distributions are made, and
-
is not subject to CIT or an
equivalent tax on income
received. This will be deemed to
be the case if (i) a French or
foreign shareholder is exempt
from CIT or (ii) a foreign
shareholder is subject, in its
state of residence, to a tax on
profits that is more than two
thirds less than it would have
paid in France.
By exception, the deduction is not
applicable if the shareholder in question
is a company which is itself subject to
an obligation to distribute all the
dividends it receives, in particular if it is
another SIIC. But in this last case, this
exception will only apply if shareholders
of the second SIIC that hold, directly or
indirectly, at least 10% of its share
capital are themselves subject to CIT or
an equivalent tax on the distributions
they receive.
The 20% deduction relates to
distributions as strictly defined and also
to amounts deemed to be distributed
(for example, sums reincorporated into
the taxable result of a company and
hidden distributions or salaries).
20% DEDUCTION FROM CERTAIN
DISTRIBUTIONS OF DIVIDENDS
SIICs must pay an amount equal to
20% of distributions made on or after 1
July 2007, when:
•
16
17
sums distributed are taken from
profits exempt from CIT owing to the
SIIC regime (the deduction does not
Instruction 4 J-2-92, n° 10, 3 August 1992, and
administrative Documentation 4 J-1334, n° 30,
1 November 1995
Article 119 bis-2 of the French Tax Code
It is recovered in the same way as CIT
and must be paid spontaneously to the
tax authorities in the month following
payment of the dividends in question.
Furthermore, the deduction is neither
imputable nor refundable and may not
be treated as a charge that is deductible
from the tax result of the SIIC making
the distribution.
REGIME APPLICABLE TO PROFITS
ARISING FROM PARTNERSHIPS
HELD BY SIICS OR THEIR
SUBSIDIARIES THAT HAVE OPTED
FOR THE REGIME
The portion of the tax result arising from
partnerships in which a SIIC or its
subsidiaries that have opted for the SIIC
regime hold an interest is exempt in the
hands of these partners, provided that:
•
the partnerships have a corporate
purpose that is identical to that
required for SIICs and that
•
their partners (SIICs or subsidiary of
SIIC) distribute these profits to their
own shareholders, complying with
the proportions and time limits for
each category of income (that is,
distinguishing profits on lettings or
sub-lettings and profits on
disposals).
NEUTRALISATION OF CAPITAL
GAINS ON DISPOSALS WITHIN A
SIIC GROUP
Capital gains realised by SIICs or their
subsidiaries on disposals of real estate,
of the real estate title rights referred to
above or rights under a real estate
finance lease are only exempt if there
are no links of dependency (within the
meaning of article 39-12 of the French
Tax Code) between the transferring
company and the acquiring party.
Consequently, capital gains on the
disposal of these assets between the
SIIC and its subsidiaries or between
subsidiaries of a SIIC are not, in
principle, exempt from CIT.
However, following the 2006 Amending
Finance Act, for financial years starting
on or after 1 January 2007, capital
gains resulting from disposals within a
SIIC group will now no longer be
subject to CIT for the financial year in
which they are realised, on the
condition that the acquiring company
undertakes, in the deed of assignment,
to comply with the following obligations,
which are similar to those relating to
mergers benefiting from the preferential
tax regime set out in article 210 A of the
French Tax Code:
Lovells Tax
•
for depreciable fixed assets:
progressively to reincorporate the
capital gain on disposal into its
profits liable to CIT at the full rate, in
principle over a period of fifteen
years for constructions and related
rights (or, for constructions only,
over their average weighted
depreciation period, if total net
capital gains on these constructions
represent more than 90% of the net
global capital gain on the
depreciable items disposed of),
•
for non-depreciable fixed assets: to
calculate the capital gains realised
later, on disposal of such fixed
assets, according to the value they
had for tax purposes in the books of
the disposing company, and
•
for rights under a finance lease: to
comply with the obligations relating
to depreciable or non-depreciable
assets mentioned above.
Furthermore, companies that place
themselves under this special regime
must comply with the following
18
declarative obligations :
•
attach a record of their capital gains
subject to a time extension for
payment of tax to their declaration of
results for the financial year of the
disposal and subsequent financial
years, for as long as the assets for
which the capital gain on disposal is
subject to postponed taxation
remain on the balance sheet, and
•
keep a record of the capital gains on
non-depreciable assets at the
disposal of the administration and
retain this record until the end of the
third year following the year in which
the last item included on this record
ceases to appear on the balance
sheet.
18
Article 54 septies of the French Tax Code
7
Lovells Tax
8
Continuation of the regime in the event of a merger or an
acquisition between SIICs
In the event of a merger bringing about
the absorption of one SIIC by another,
or acquisition of at least 95% of the
share capital of a SIIC by another SIIC,
dispensatory rules allow SIICs to avoid
exiting the SIIC regime by allowing the
absorbing or acquiring SIIC to ensure
the continuity of the pre-existing SIIC
group at the head of which it now sits.
the merger bonus is exempt provided
that 50% of it is distributed before the
end of the second financial year
following the year in which it is made.
Distribution obligations are capped at
the accounting profit, with any excess of
the fiscal distribution obligation over the
accounting result being carried forward
against future results until it is used up.
MERGERS BETWEEN TWO SIICS
The capital gain on real estate arising
on a merger or assimilated and
reincorporated is an element of the
result subject to the distribution
obligations. It is thus subject to a
distribution obligation in respect of 85%
of its amount before the end of the
financial year following the
reincorporation.
For transactions carried out since 1
January 2005, the merger of two SIICs
does not bring about the absorbed
company’s exit from the SIIC regime if
the absorbing company undertakes in
the merger deed to substitute itself for
the absorbed company for distribution
obligations not satisfied at the date of
the merger.
Also, in the event of absorption of a
company subject to the SIIC regime, the
benefit of the special merger regime is
available on the condition that the
absorbing company undertakes, in the
merger deed, to substitute itself for the
absorbed company for the distribution
obligations that the absorbed company
has not satisfied at the effective date of
the merger. The absorbing company
has the same amount of time to satisfy
the obligations as the absorbed
company had.
Similarly, in the event of demerger of a
company that has opted for the regime,
the distribution obligations must be
taken on by the companies receiving
the contributions, pro rata to the net real
assets contributed, valued as at the
effective date of the demerger.
If the distribution undertaking is not
given or distribution obligations are not
satisfied, the special merger regime will
be called into question.
No similar obligation has been provided
for partial contributions of assets. Thus,
the contributing SIIC will itself have to
satisfy the distribution obligations, even
if the contribution relates to the
business’ real estate activity.
In the event of absorption of a company
that has opted for the exemption regime
by a company that has also opted for it,
ACQUISITION OF AT LEAST 95% OF
THE SHARE CAPITAL OF ONE SIIC
BY ANOTHER
Following the 2006 Amending Finance
Act, for financial years starting on or
after 1 January 2007, a rule allows a
"target" SIIC, at least 95% of the share
capital of which is acquired by another
SIIC, to become the subsidiary of that
SIIC as of the financial year of the
acquisition, without waiting for the
beginning of the following financial year.
In this situation, the "target" SIIC will not
be subject to the taxation regime that
applies in principle in cases of exit by a
SIIC from the regime during the ten
years following election for the regime,
provided that the "target" company (i)
finishes fulfilling its distribution
obligations and (ii) remains a subsidiary
of the acquiring SIIC for ten years
starting from the financial year in which
the "target" SIIC makes its initial option.
Lovells Tax
9
Preferential regimes in the event of disposal of certain real estate
assets to a SIIC
GENERAL REDUCED TAXATION
REGIME IN THE EVENT OF
DISPOSAL OF CERTAIN REAL
ESTATE ASSETS
By virtue of a preferential regime
introduced by the 2005 Finance Act and
the 2005 Amending Finance Act, a
reduced rate of CIT (16.5%, increased
to 19% for financial years ending on or
after 1 January 2009 following the 2009
Amending Finance Act) is applicable to
capital gains on the disposal of real
estate assets, rights under a real estate
finance lease or, for financial years
starting on or after 1 January 2007,
19
certain real estate title rights , when
the disposal is made by a legal entity
subject to CIT (in ordinary law
conditions) in favour of a SIIC 20 or, for
financial years starting on or after 1
January 2007, in favour of a subsidiary
of a SIIC subject to CIT and benefiting
from the same regime 21 .
Conditions of application
Under this preferential regime, capital
gains on disposals of this type (sales,
contributions or exchanges) are subject
to CIT at the reduced rate of 19%,
provided they fulfil the following
conditions:
•
the disposal must have been made
between 1 January 2006 and 31
23
December 2011 ,
•
the acquiring company must
undertake to retain, for at least five
years, the real estate asset, the
shares in the company with mainly
real estate assets or the rights
transferred to it in the disposal. In
24
2007 a decree specified that this
retention undertaking must be given
in the deed of assignment of the real
estate assets or rights concerned
and a copy of the deed must be
attached to the declaration of results
of the transferring and acquiring
companies for the financial year in
which the disposal occurs. The 2009
Finance Act specified that the fiveyear holding commitment would not
be considered breached if the
relevant property is demolished in
whole or in part, provided the
reconstruction of said property is
finalised within the five-year holding
period, and
This preferential regime has been
extended by the 2008 Finance Act to
capital gains realised by a legal entity
subject to CIT as a result of the transfer
of shares of companies with mainly real
estate assets for the benefit of a SIIC,
or of a subsidiary of a SIIC that is
subject to CIT and benefits from this
same regime.
This measure applies, generally
speaking, to capital gains on disposals
made in the same conditions, in favour
of a company making a public offering
(of securities giving access to the share
22
capital ) and whose main corporate
purpose is acquiring or constructing real
estate assets for rent.
•
when the acquiring company is a
subsidiary of a SIIC (subject to the
same regime), this company must
also remain subject to the
exemption regime for SIICs for at
least five years starting from the
financial year of the acquisition.
Sanction for non-compliance with
application conditions
19
20
21
22
The beneficial ownership of a real estate asset
and the rights of the lessee under a construction
lease or emphyteutic lease.
This measure applies, in general terms, to
capital gains arising on disposals made, in the
same conditions, to a company making a public
offering of securities giving access to the share
capital and whose main purpose is the
acquisition or construction of real estate assets
for letting.
Article 210 E of the French Tax Code
New condition, created by the 2006 Amending
Finance Act
fine of 25% of the disposal value of the
real estate assets, the shares in the
company with mainly real estate assets
or the rights not retained.
Following the 2006 Amending Finance
Act, when the acquiring company is a
subsidiary of a SIIC, its exit from the
SIIC regime before expiry of the
aforementioned five year period renders
the same fine payable.
REGIME FOR DEFERRAL OF TAX
FOR DISPOSALS OF REAL ESTATE
ASSETS IN THE HOTEL, CAFÉ AND
RESTAURANT SECTOR
A preferential regime put in place by the
2006 Amending Finance Act allows
businesses in the hotel, café and
restaurant sector to benefit from a
deferral of tax on capital gains they
make on disposal of their real estate
assets (or of shares representing at
least 95% of the share capital of a
company with mainly real estate assets)
to a SIIC or one of its subsidiaries that
has opted for the same regime, subject
to compliance with the following
conditions:
•
the disposal must be made between
1 January 2006 and 31 December
2009,
•
the disposing business must have
owned the assets disposed of for at
least five years (and be subject to a
genuine tax regime),
•
the acquiring company must lease
to the operator making the disposal
the real estate assets concerned for
at least nine years, starting from the
25
date of their acquisition , and
•
a hotel, café or restaurant business
must continue to be carried out in
the leased premises for at least the
nine years referred to above, by the
disposer (or, in the event of
cessation of its activity, by a person
in the same economic sector).
Failure to comply with this retention
undertaking will make the SIIC
benefiting from the disposal liable to a
23
24
Initially envisaged to apply to disposals realised
between 1 January 2006 and 31 December
2008, the regime was extended for 3 years by
the 2009 Finance Act
Decree n°2007-561, of 16 April 2007, codified in
article 46 quater-0 ZZ bis C of Annex III to the
French Tax Code.
In consideration, the acquiring company
(SIIC or subsidiary of a SIIC) may
benefit from the CIT exemption resulting
25
Article 151 septies C of the French Tax Code
Lovells Tax
from the SIIC regime in relation to
profits arising from the leasing of such
real estate assets provided it distributes
50% of the profits to its shareholders
(rather than 85% normally), before the
end of the financial year following the
one in which they are made.
GENERAL REDUCED TAX REGIME
IN THE EVENT OF TRANSFER OF
CERTAIN REAL ESTATE ASSETS TO
A LEASE PURCHASE COMPANY
The capital gains realised upon the
transfer of developed or undeveloped
real estate assets to a lease purchase
26
company can benefit from the 19%
rate when the lease purchase body has
concluded a lease purchase contract
with a listed real estate company or a
subsidiary thereof in respect of the
27
properties . The lessee must, in
addition, agree in the deed of
assignment to maintain the lease
purchase agreement for a period of five
years.
The subsidiary of the listed real estate
company having opted for the
exemption regime must remain under
this regime for a period of five years
from the acquisition.
Failure to comply with the conditions for
the application of this provision will
result in a fine equal to 25% of the value
of the real estate asset held following
the transfer.
It is apt to note that for the subsidiaries
of listed real estate companies, the
undertaking could be terminated by
exiting the exemption regime within the
five years following the date of the
transaction. However, temporary
suspension of the exemption regime for
listed real estate companies is unlikely
to result in such a termination.
This provision is applicable to the net
capital gains resulting from the
concerned transactions for financial
26
The transferring company must carry out the
property leasing transactions provided for by
Article L 313-7, 2 of the Monetary and
Financial Code.
27
Article 210 as provided for by the Amending
Finance Act of 4 February 2009.
10
years ended between 5 February and
31 December 2009.
Lovells Tax
11
Declaration obligations and sanction for breach of application
conditions of the regime
DECLARATION OBLIGATIONS
A SIIC and its subsidiaries must respect
certain formalities to be eligible for the
regime.
As well as their declaration of results,
companies must provide a declaration
showing the breakdown of their tax
result and related distribution
obligations.
Furthermore, a SIIC must provide, in
particular, with its annual declaration of
results, a list of its subsidiaries that
have opted for the regime, as well as a
statement showing the detail of the
capital gains on real estate assets that
have been subject to CIT at 16.5%
(19% as from 1 January 2009).
SANCTIONS FOR BREACH OF THE
APPLICATION CONDITIONS OF THE
REGIME
The 2009 Finance Act has amended the
tax consequences of the breach of the
new conditions for dispersal of the
share capital of SIICs and the exit from
the SIIC status.
Breach of the new conditions for
dispersal of the share capital of SIICs
No shareholder or group of shareholder
acting in concert may hold directly or
indirectly more than 60 percent of the
SIIC share capital.
In the event of a temporary breach of
the dilution threshold condition, the
regime is suspended. The regime may
only be suspended once during the ten
years following the option and the
following ten years. (Exit will otherwise
be definitive).
The suspension period begins when the
dilution threshold condition is breached
for the first time. The SIIC exits the
regime for the rest of the current
financial year. Exit from the regime is
temporary as long as the SIIC complies
with the dilution threshold by the end of
the financial year in which the threshold
was crossed. The SIIC will be entitled to
benefit from the SIIC regime as from the
beginning of the next financial year.
However, if the SIIC does not comply
with the dilution threshold by the end of
the financial year in which the threshold
was crossed, the SIIC will exit
definitively from the SIIC regime and be
subject to the penalties mentioned
above. A new breach of the dilution
threshold condition within the following
10 years will lead to the definitive exit
from the SIIC status.
During the suspension period the SIIC
becomes subject to CIT at the ordinary
rate on all profits, excluding capital
gains on the disposal of buildings which
are subject to CIT at a rate of 19%.
Those capital gains are reduced by the
amount of depreciation booked on the
relevant property during the period
when the company was subject to the
SIIC status.
In the event of return to the regime in
the financial year following the one in
which the regime was suspended,
unrealised capital gains on exempted
assets realised during the suspension
period are taxed at the reduced rate of
19%. Unrealised capital gains on
taxable assets are not taxed
immediately.
The condition that at least 15% of the
share capital of the SIIC must be held
by persons each holding less than 2%
of the capital only needs to be fulfilled
upon entry of the SIIC to the regime. As
a result, ceasing to comply with this
requirement later is without
consequence.
Definitive exit from the SIIC status
The SIIC will exit definitively from the
SIIC status in the following cases:
•
the SIIC ceases to fulfil the access
28
conditions for the regime
•
The dilution threshold condition
ceases to be satisfied following a
takeover, public exchange offer,
merger, demerger, dissolution confusions de patrimoine (a
simplified type of merger between
parent companies and their wholly
owned subsidiaries) or conversion
28
See page 2.
or repayment of bonds in shares,
and the situation is not regularised
at the latest by the expiry date of the
period for filing the declaration of the
results of the financial year in
question.
•
The dilution threshold is breached
and the situation is not rectified by
the end of the financial year in which
the breach occurred.
•
The dilution threshold is crossed
more than once within 10 years of
opting for the regime, or within ten
years of the first time the threshold
was crossed.
In these cases the exit from the SIIC
status will come into effect retroactively
on the first day of the financial year
concerned.
The SIIC and its subsidiaries become
subject to the ordinary corporate tax
rate at the beginning of the financial
year in which one of the access
conditions is not respected.
However, they continue to benefit from
a CIT exemption on the profits arisen
previous to the exit of the SIIC status
(provided that the distribution
obligations were respected for those
financial years). Since the 2009 Finance
Act the SIIC and its subsidiaries must
reintegrate into their tax results an
amount corresponding to the benefits
previously exempted because of the
SIIC status and not distributed.
In the event of exiting the SIIC regime
within 10 years following the option for
the SIIC status, the capital gains on the
termination of the SIIC previously
subject to CIT at a rate of 16.5% (or
19% as from 1 January 2009) will be
subject to CIT at the normal rate,
reduced by the amount of the exit tax.
In addition, the CIT is increased by the
newly created tax of 25% applicable to
part of unrealised capital gains on
assets acquired since the company
opted for the exemption regime. The
taxable basis is equal to the amount of
unrealised capital gains on assets
acquired since the company opted for
the exemption regime, minus one tenth
Lovells Tax
per calendar year elapsed since the
regime came into force.
Finally, the SIIC will be subject to an
additional tax if a company exits from
the SIIC status following a suspension
period. In this case the SIIC would be
liable to the same taxation as that
payable if it re-entered the regime
(taxation at a rate of 19 % of the
unrealised capital gains acquired since
the first day of the financial year in
which the status was suspended).
Breach by a SIIC subsidiary of the
conditions of access to the regime
Similarly, if a subsidiary of a SIIC that
opted for the same regime no longer
fulfils the access conditions for the
29
regime , it is excluded from the scope
of this preferential regime with a
retroactive effect to the first day of the
financial year during which the event
triggering its exit from the regime
occurred.
The same consequences ensue as in
the case of exit by a SIIC from the
regime for breach of the access
conditions, with the following exception:
exit from the regime by a subsidiary of a
SIIC does not make extra CIT payable
on unrealised capital gains previously
taxed at 16.5% (19% as from 1 January
2009).
Breach of distribution obligations
If the SIIC or its subsidiaries do not
make, in the time limit and proportions
provided, the distributions required by
virtue of the SIIC regime, they lose the
benefit of the CIT exemption for all
revenue (profits, capital gains,
dividends) of the financial year
concerned 30 .
29
30
This will be the case if (1) the company ceases
to be subject to CIT, (2) the percentage of its
capital held by the SIIC falls below 95% or (3)
there is breach of the conditions relating to the
company’s main corporate purpose.
Instruction 4 H-5-03, n°44, 25 September 2003
12
Lovells Tax
13
Annexe
WITHHOLDING TAX RATES
APPLICABLE TO DISTRIBUTIONS OF
DIVIDENDS CONTAINED IN THE
MAIN TAX TREATIES
Treaty
Withholding tax
France-Germany
0% if the German company is a company with a share capital and holds at least 10% of the SIIC’s
share capital (15% otherwise)
France-Luxembourg
5% if the Luxembourg company is a company with a share capital and holds at least 25% of the
SIIC’s share capital (15% in other cases) or 25% if the Luxembourg company qualifies as a 1929
Luxembourg holding company
France-Netherlands
5% if the Dutch company is a joint stock company or a limited liability company and holds at least
25% of the SIIC’s share capital (15% in other cases)
France-Spain
0% if the Spanish company is subject to CIT and holds at least 10% of the SIIC’s share capital
(15% otherwise)
France-UK
Current regime:
5% (15% if the UK company holds less than 10% of the voting rights of the SIIC)
Future regime, according to the new tax treaty between France and UK signed on 19 June 2008,
not yet in force :
15% if the UK company is subject to CIT holds less than 10% of the share capital of the SIIC (25%
otherwise).
France-US
Current regime:
5% if the American company holds at least 10% of the SIIC’s share capital (15% in other cases)
Future regime, according to the new tax treaty between France and US signed on 13 January
2009, not yet in force :
A 15% withholding tax rate shall apply only if:
- the beneficial owner of the dividends is an individual, or a pension trust or other organisation
maintained exclusively to administer or provide retirement or employee benefits that is established
or sponsored by a resident, in either case holding an interest of not more than 10% in the SIIC ; or
- the dividends are paid with respect to a class of shares that is publicly traded and the beneficial
owner of the dividends is a person holding an interest of not more than 5% of any class of the
shares in the SIIC ; or
- the beneficial owner of the dividends is a person holding an interest of not more than 10 percent
in the SIIC
Otherwise a 25% withholding tax rate shall apply
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