Our French Tax Lawyers can help you save in capital gains when you sell real estate in France.
Pursuant to Article 39 of the General Tax Code, capital gains earned by a taxpayer gainfully employed at the time of the sale of real estate to a leasing company may, under certain conditions, be subject to a tax adjustment for a maximum of fifteen years.
These innovative provisions took temporary effect on April 23, 2009, and in principle were null and void starting on December 31, 2010.
Terms and Conditions
To benefit from these tax adjustments, taxpayers must be subject to either corporate taxation or income tax in the categories of business profits, agricultural profits, or non-commercial profits (including a share of capital gains realized by a company under the corporate income tax of their associated partnerships, which would be taxable on their behalf under the same conditions).
The transfer must relate to a developed or undeveloped property accounted for in the balance sheet or assets register of the transferor.
On the other hand, actions not affected by the scheme include sales of movable property, as per the rights related to real estate and securities of real estate companies.
Furthermore, the real estate transfer must be executed for the benefit a leasing company, in other words a business that conducts the daily operations of leasing.
Pursuant to Article L. 515-2 of the Monetary and Financial Code, the transferee is therefore necessarily a commercial enterprise that has been approved as a credit institution.
Finally, the benefits of these provisions are subject to change should the transferor immediately regain possession of the property as part of a real estate lease contract.
The seller becomes the "lessee" and shall maintain continuous access to the sold property. If they decide to sublet, this choice does not affect the fulfillment of this condition.
This system of adjustments is optional.
For those who qualify, this option mandates a management decision for businesses which elicits opposition, notably in the event of tax audits.
When implemented, this opinion concerns all capital gains relating to the property in question in the short and long term. It is not possible to extend a single capital gain in the short run or a single capital gain in the long run.
Each component of the adjustment is subject to its respective tax systems.
Thus, for each financial year, the long term capital gain is taxed according to the applicable rates on such gains. Short term added value is added to the year’s income.
The capital gains entitled to tax adjustments only include those related to the property assigned and reassigned to the transferor (the resulting reduction will be subject to a holding period as specified in Article 151 of the C.G.I., or partial exemptions as established in Article 151 of the General Tax Code).
In the latter case, when the net profits for one year were partially due to the sale of other assets, only the portion of capital gains related to the specific property in question, as per the provisions of Article 39 of the General Tax Code, will benefit from the adjustment.
Nevertheless, this should not be combined with the provisions of the Article 39 which offers companies that are subject to income taxes an adjustment of the short term capital gains during the year concerned as well as the two years to follow.
For example, a company that is subject to income taxes and realized short term capital gains of €15,000 following the sale of real estate to a leasing company, experiences a short term gain of €7,500 and a loss of €6,000 linked to other assets.
The net gain for the year, or €16,500, falls within the scope of Article 39 of the General Tax Code and therefore is €15,000 is taken into consideration. If the company qualifies for a partial exemption of 60% of its net capital gains, in accordance with Section 151 of the GTC, the taxable gain (€6,600) benefits from adjustments up to €6,000.
The adjustments are carried out each fiscal year. The capital gains are distributed in equal shares each year after the lease was established, not to exceed fifteen years. It will therefore be chronologically tied to the fiscal year of implementation and the years to follow.
Each share is equal to the amount of capital gains, divided by the number of years until the end of the lease contract (or fifteen years if the contract exceeds this period).
Capital gains shall be reinstated in equal shares throughout each fiscal year during the determined period.
When amending the duration or date of the lease, if it changes the number of years prior to the expiry of the contract or the fifteen year limit, the company must recalculate the amount of each share based on the new figure.
Similarly, if a signed lease contract is amended and modifies the duration of its validity, the company is obliged to recalculate each share according to the new time period.
All adjustments shall be terminated in the event of the “lessee’s” permanent acquisition of the property, or the termination of the lease. For this purposes of this scheme, the termination of a lease contract includes any event or action that ends the relationship between the leasing company and the lessee.
Specifically, the provisions provided in Articles 202 ter, 210 A and 221 bis of the General Tax Code delay, under certain conditions, the immediate benefits of tax deferral in the event of a cessation of activity by the "lessee" or if a transfer of rights in the lease has been carried out.
The system of adjustments does not have specific reporting requirements.
The options for this plan are manifest in the reported capital gains that are covered by the scheme. "Deductions" are explained in Table 2058-A (Lines WZ and WV depending on the nature of the gain) or 2033-B (line 350).
At this point, it is clear that accounting firms are tasked with the mission of "supervision" in the truest sense of the term, naturally in the field of preventing tax risks.
Each year, the share of short term capital gains is reinstated in Table 2058-A (line WN) or in Table 2033-B (line 330).
The share of long term added value is declared on earning statements for each fiscal year (No. 2031, No. 2035 or No. 2143), will be approved in income declaration of income for "Sir or Madam everyone."
Monitoring will be carried out using Table 2059-B for short term gains in the business plan under the normal scheme. For those subject to a simplified tax and long term capital gains, a tracking report similar to category A of Table 2059-B will be provided when filing the declaration of outcomes for each year until the expiry of adjustment period.
This statement will specify the length of tax adjustment restraints.
For taxpayers who are not covered by an effective tax system, the option of tax adjusting devices is clearly established, in support of the consolidated statement of income.
For each year covered by the adjustment, it is necessary to enclose affirmation of a monitoring system similar to category A of Table 2059-B.
This is a perfect illustration of the balancing system between "favors and constraints"; firmly anchored in tax legislation.
The "ransom to be paid" by taxpayers conducting business, who wish to benefit from the adjustments of capital gain referred to in Article 39 of the General Tax Code, in fact is subject to declarative constraints for a period of fifteen years ...
Without encroaching on the "turf" of Chartered Accountants, tax lawyers also play a role in helping companies secure significant tax optimization, simply proposed on December 31, 2010.