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Disguised donation: A risky temptation

Home > International Estate | Published 2010-12-30

With an entire department focused on international estates, our Paris-based French law firm can assist you in any legal issue. Our experience is extensive as we have learned from vastly diverse and complicated cases. Using this background, we will assist you in managing a safe and secure donation to your heirs.

A concealed donation is an expensive act disguised against the counterparty. Most often, it is a contract of sale. However, this costly method conceals, in fact, a gift; a gift which is characterized by material things, a loss without compensation and a corresponding enrichment of the other party, and an intellectual element. The donor’s intent is therefore to reward another anonymously.

Disguised donation is used to bypass the heavy taxes levied on gifts. Indeed, the contractors, by signing a sales contract, avoid the gift tax and its progressive rate. The sales price is not paid, therefore it is a donation.

If a hidden act of pecuniary generosity is discovered, it will then be reclassified as a donation. The donation remains valid if enacted between spouses and if it meets the formal requirements of the act under consideration, it will remain disguised, as specified in article 931 of the Civil Code. Therefore, the transfer of an immobile, disguised donation will immediately reclassify the articles in question as “donations” and thereby the transfer of property ownership will not be jeopardized (assuming that the formal requirements of property sales and the deed have been respected). In order to maintain its validity, the gift must also comply with substantive requirements; for instance, the legal capacity of the donor and recipient as well as their mutual consent.

The donation applies with full impact and may, like all gifts, be reduced should it affect the conduct of the other heirs.

Proof of disqualification is reported through various means (e.g. donor age, relationship with the recipient, the donor and recipient’s financial situation) as well as in writing (if the matter concerns more than €800). In this case, the administration considers that an abuse of the law has occurred because the act is fictitious and was inspired by purely fiscal grounds. The contractor is then exposed to very heavy tax penalties, the taxpayer must pay not only the gift tax but also interest on late payments set at 0.40% per month with an additional increase of 80%.

Thus, if there is no civil penalty and the donation’s existence remains concealed, the tax penalties are ominous. We must therefore avoid such a situation.

We must focus on other transmission mechanisms that can be provided by competent counsel in the matter.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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