How to manage the deficits of a company that is part of a group?

17-11-2010

When a company generates deficits, it does not pay taxes. It may postpone its deficits. As part of a group, various operations can allow to optimize the management of deficits. Experienced French Lawyers in tax law or business law can advise you to choose appropriate solutions to your situation and achieve them.

If the loss making company is owned by more than 95%, it is possible to consider a tax consolidation. This will see deficits based on the profits of the entire group. The lawyer can analyze your situation to see if all of the tax consolidation is satisfied.

In France, when the conditions for integration are not met, the merger may be the wrong solution. As part of a merger, it is usually the recipient company that absorbs the company’s loss. Deficits are lost unless the company satisfies the conditions enabling him to obtain approval. To avoid being confronted with a refusal of approval, it may be wise to conduct a reverse merger, also referred to, merger with English. Then the company absorbs the loss payee. This mechanism keeps the deficit and use. This is possible only if the activity of the loss company is maintained. The State Council said, March 21, 1986, that the meaning of the merger was free. However, this freedom is not total: the choice should not be determined by purely tax reasons under pain of falling under the ambit of the legislation on abuse of rights. It is therefore necessary to consult a legal professional to determine if the operation can be performed safely.

The merger may also be useful in the context of a takeover through a holding company. The holding company borrows to buy the social rights of the target company. The holding company, structural deficit maker, pays down its debt through dividends from the target company. To facilitate this reimbursement, it is possible to make a fusion between the target and the holding company so that it has surplus cash of the target. Again, there are risks of abuse. This operation must be performed by a lawyer.

A third mechanism may be used: lease management. The loss company becomes the landlord and a group company becomes the tenant-manager. The latter will pay royalties deductible results. The loss making company, that became the lessor, will receive the royalties but will not pay tax because of the existence of deficits.

Finally, we can consider transforming company deficient CNS to practice a de facto tax consolidation (the deficit of partnerships directly with their dating partners). But this mechanism is limited in scope since it is necessary that the CNS is a social form that suits the company's business loss as a candidate for transformation. Do not, under any circumstances make a transformation purely artificial. And there is a problem of limited liability ...

All these mechanisms are a real value for deficits. But they must be made with caution. The presence of a French business law firm with extensive experience in this area is therefore essential to ensure the validity of the transaction and the lack of penalties on the grounds of abuse of rights.

Document up to date on February 2010

Picovschi Lawyers

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