This first French Tax Update for 2016 contains an overview of the main provisions proposed by the Finance Bill for 2016 (Loi de finances pour 2016,2016 Finance Bill) and the Amending Finance Bill for 2015 (Loi de finances rectificative pour 20152015 Amending Finance Bill, together with the 2016 Finance Bill, the Finance Bills). The Finance Bills have now been enacted by the French Parliament and reviewed by the Constitutional Court (Conseil constitutionnel), which has struck down some of their provisions in its decisions dated December 29, 2015.

In addition to the main provisions of the Finance Bills, the present French Tax Update provides an update on (i) the December 7, 2015 decision of theConseil d'État on the availability of foreign tax credits under the so-calledrègle du butoir, as well as (ii) the recent update of the French list of non-cooperative jurisdictions.

RECENT NOTEWORTHY CASE LAW 

  •  THE CONSEIL D'ETAT RULES ON THE REGLE DU BUTOIR 

On December 7, 2015, the Conseil d'Etat (French Supreme Court for most tax matters) decided a case regarding the availability of a French tax credit resulting from foreign withholding taxes suffered by French corporate taxpayers in respect of inbound dividends.

In this case, the taxpayer had borrowed Italian equity securities, received the relevant dividends (which had suffered the relevant Italian withholding tax), and paid manufactured dividends (and a stock lending fee) to the relevant lender. The question was whether the manufactured dividends (and the lending fee) should be imputed against the inbound dividends, in which case no tax credit would have been available, given the fact that under the relevant corporate tax rules, the tax credit may not exceed the French tax due in respect of the underlying income (the so-called règle du butoir).

The Conseil d'Etat decided in favor of the French tax authorities (FTA), thus taking, partially, a different position to the one it had taken in 2009 when acting as an advisory body.

In 2009, the Conseil d'Etat had taken the view that only the expenses directly linked to the acquisition, holding, and sale of the relevant securities should be taken into account for the règle du butoir; for example, theConseil d'Etat had decided the interest paid on the financing of the acquisition of the securities, or any capital loss on the sale of the securities, should not be viewed as "directly linked" for the above purposes. The Conseil d'Etat had also taken the view that expenses borne outside of France, other than foreign taxes (e.g., payments made to a nonresident party representing the sharing of the tax benefit of a given transaction) should not be taken into account for the règle du butoir.

The Appeal Court of Versailles had decided in favor of the taxpayer, following the reasoning used by the Conseil d'Etat in its 2009 advice.

The Conseil d'Etat, deciding in favor of the FTA, follows the reasoning below. (NB: Technically, the Conseil d'Etat is not, when deciding in a litigation case, bound by the advice it has given in the past):

In accordance with article 220 (1) (b) of the French tax code (FTC) and with the French Italian tax treaty, the règle du butoir limits the imputation of the tax credit to the French corporate tax due in respect of the underlying dividends.

The relevant French corporate tax is the one computed under article 39 of the FTC, which defines the deductible expenses to the extent they are directly linked to the acquisition, holding, and sale of the Italian securities.

In 2009, the Conseil d'Etat had advised that article 122 of the FTC excludes taking into account any payment outside of France other than the relevant foreign withholding tax. The Conseil d'Etat has now decided that article 122 defines only the taxable income (i.e., gross income minus foreign withholding tax) and has no bearing on the definition of the expenses that should be taken into account for therègle du butoir. In this respect, the Conseil d'Etat takes the view that the manufactured dividends (and the lending fees) should be deducted from the dividends.

It should be noted that the facts of the case predate the specific anti-abuse provision that was introduced in the FTC in 2010. Under this anti-abuse rule, there would have been no doubt that any amount paid to the lender should have been deducted for the purposes of the règle du butoir (unless the taxpayer could have proved that the transaction was not principally tax motivated), thus reducing to nil the amount of tax credit available to the borrower.

It seems that the new interpretation provided by the Conseil d'Etat may enable the FTA to challenge certain transactions that would not fall exactly within the scope of the anti-abuse provisions.

FINANCE BILLS—TAXATION OF DIVIDENDS 

  • PARTICIPATION EXEMPTION REGIME OVERHAUL

The 2015 Amending Finance Bill includes various provisions regarding the participation exemption regime (Participation Exemption) and related matters.

NATURE OF EQUITY SECURITIES ENTITLED TO THE REGIME

The Participation Exemption basically requires that the relevant securities are held for a minimum period of two years and represent 5 percent or more of the share capital of the issuing entity. Until now, the relevant securities had to be fully owned (pleine propriété) by the relevant parent company. The 2015 Amending Finance Bill provides that the Participation Exemption would also apply if the parent company holds the bare ownership (nue-propriété) of the securities. As an example, the relevant parent company may fully own shares representing 4 percent of the share capital and hold the bare ownership of shares representing 1 percent of the share capital. Mere usufruct, however, would never qualify for the Participation Exemption.

NB: Under the civil law rules, the ownership of a given asset may be divided into bare ownership and usufruct (usufruit); in respect of an equity security, the usufruct typically entitles the holder to receive the annual dividends and to vote during AGMs (annual general meetings, assemblées générales ordinaires), whereas the holder of the bare ownership is entitled to dividends distributed out of the reserves and votes during EGMs (extraordinary general meetings, assemblée générales extraordinaires) (NB: the parties may agree otherwise).

The above new rules would also apply to the Participation Exemption covering French outbound dividends. NB: Existing case law, from a lower administrative court and an appeal court, had already decided that the bare ownership of securities should not prevent the application of the Participation Exemption.

DIVIDENDS NON-ELIGIBLE FOR THE PARTICIPATION EXEMPTION

The 2015 Amending Finance Bill introduces a new anti-abuse provision. The dividends received by the relevant parent company would not be eligible, under the Participation Exemption, if such dividends are received as part of an arrangement or a series of arrangements put into place for the main purpose, or one of the main purposes, of obtaining a tax advantage that defeats the object or purpose of the Participation Exemption, and such arrangements are not genuine based on all relevant facts and circumstances.

In this respect, an arrangement (or series of arrangements) would not be genuine if it is not put into place for valid commercial reasons that reflect the economic reality.

The above anti-abuse rule provides more room for the FTA to challenge certain transactions as compared to the French abuse of law procedure, which specifically requires an unique tax motivation.

NB: The above provisions, which also apply to outbound French dividends, in effect bring the FTC in line with the EU Parent Company Subsidiary Directive (2015/121/UE) dated January 27, 2015.

NB: The 2015 Amending Finance Bill also confirms that dividends distributed by certain specific entities (e.g., REITs, exempt entities, etc.) are not eligible for the Participation Exemption.

DIVIDENDS RECEIVED FROM NON-COOPERATIVE JURISDICTIONS

Dividends distributed by entities located in non-cooperative jurisdictions (see the list below) are, in principle, not eligible for the Participation Exemption. The 2015 Amending Finance Bill introduces a safe haven rule whereby the relevant parent company may, nevertheless, benefit from the Participation Exemption if it can prove that participation in the relevant subsidiary was not motivated by fraud or by tax evasion. NB: This change of legislation follows a decision by the Constitutional Court that had decided that a general exclusion from the Participation Exemption is acceptable only to the extent the parent company may still provide the relevant evidence (of non-fraud, non-tax evasion) to benefit from the Participation Exemption.

EXEMPTION FROM FRENCH WITHHOLDING TAX FOR CERTAIN OUTBOUND FRENCH DIVIDENDS

Currently, the FTA accepts that participations in French entities, comprised between 5 percent and 10 percent of their share capital (i.e., not eligible under the EU Parent Company Subsidiary Directive) are eligible for the Participation Exemption (i.e., the exemption from French withholding tax on the relevant outbound dividends) to the extent they are held by parent entities within the European Economic Area, where such entities would not be able to input any French withholding tax against the corporate tax liability in their home jurisdiction.

The 2015 Amending Finance Bill includes a provision to legalize the FTA's position outlined above.

EXTENSION OF THE PARTICIPATION EXEMPTION APPLICABLE TO OUTBOUND FRENCH DIVIDENDS

The Participation Exemption also would be applicable to dividends paid to the relevant parent companies located or established in Iceland, Norway, and Liechtenstein; similarly, the French branch tax would not be applicable to the French branches of entities located in the above jurisdictions.

  • PARTICIPATION EXEMPTION REGIME CONDITIONS RELAXED FOR NONPROFIT ORGANIZATIONS 

Among the provisions contained in the 2015 Amending Finance Bill is the adjustment of the Participation Exemption in cases where the French parent company is controlled by a nonprofit organization.

Article 36 of the 2015 Amending Finance Bill provides that in order for such French parent company to benefit from the Participation Exemption, the standard 5 percent holding requirement of the share capital during a two-year period is reduced to a 2.5 percent holding requirement of the share capital and 5 percent of the voting rights of the issuing company, while the holding period is increased to five years.

These new provisions apply for fiscal years ended as from December 31, 2015.

Official guidelines to be issued by the FTA will be awaited as the new provisions do not specify the criteria to be met by nonprofits organizations in order for their subsidiaries to benefit from this regime. 

  • DIVIDEND DISTRIBUTIONS WITHIN FRENCH TAX GROUPINGS NOW ONLY 99 PERCENT TAX EXEMPT 

As announced in our December 2015 French Tax Update, in a late parliamentary session on November 30, 2015, the French Government proposed, as part of the 2015 Amending Bill, new provisions to bring the FTC in line with the September 2, 2015 Steria judgment (please see our October 2015 French Tax Update for further details). In Steria, the European Court of Justice (ECJ) ruled that the taxation of a 5 percent add-back on dividends received from EU subsidiaries under the participation-exemption regime was in certain cases not compliant with the freedom of establishment principle.

In order to end this restriction, Article 40 of the 2015 Amending Finance Bill provides that dividends received within a French tax grouping will no longer be fully exempt from corporate income tax, as the 5 percent add-back will no longer be neutralized. Correlatively, dividends received by members of a French tax grouping, be it from French or from EU subsidiaries, will be subject to a reduced add-back of 1 percent (i.e., dividends so received are effectively 99 percent tax exempt).

Outside of a French tax grouping, the 5 percent add-back on dividends received under the French participation-exemption regime should remain unaffected (i.e., dividends so received are effectively 95 percent tax exempt).

  • DIVIDEND WITHHOLDING TAX EXEMPTION FOR FOREIGN LOSS-MAKING COMPANIES UNDER LIQUIDATION 

Article 82 of the 2015 Amending Finance Bill introduces a new provision in the FTC that should allow, as from January 1, 2016, outbound French dividends to benefit from a French withholding tax exemption, when paid to certain foreign entities that are:

in a loss-making position, and

under compulsory liquidation (liquidation judiciaire), i.e., companies that are no longer eligible for rehabilitation insolvency proceedings.

This provision follows the letter of formal notice nº 2013/4244 issued by the European Commission, under which it had expressed to the FTA its concerns regarding the compliance of such dividend withholding tax with the principle of free movement of capital within the EU.

The European Commission argued that nonresident investors in such position are treated disadvantageously compared to French entities in a loss-making position and under compulsory liquidation (companies that will ultimately never be subject to French corporation income tax on these distributions).

  • 3 PERCENT TAX ON DISTRIBUTED INCOME: LACK OF LEGISLATIVE ACTION AND REFUND OPPORTUNITIES 

For distributions paid out from August 2012 onward, the French government introduced a 3 percent tax due on income distributions.

This tax takes the form of an additional contribution to the French corporate income tax and equals 3 percent of the profit distributions. The most significant exception to its application concerns French tax groupings, since no 3 percent tax is due on distributions made within the members of a French tax grouping.

Given the serious doubts on the compliance of the 3 percent tax with EU Law (please see our May 2015 French Tax Update for further details), and following an infringement procedure launched by the European Commission against France in February 2015, legislative action was eagerly awaited by French taxpayers.

However, the Finance Bills did not make the necessary amendments to the relevant provisions of the FTC to bring them into compliance with EU Law.

Even though a claim of the 3 percent tax paid during 2013 is now time barred as from December 31, 2015, taxpayers should still consider filing a claim for the 3 percent tax paid during 2014 and 2015. 

FINANCE BILLS—FINANCIAL TRANSACTIONS TAX

  • INCLUSION OF INTRA-DAY TRANSACTIONS STRUCK DOWN BY THE CONSTITUTIONAL COURT 

As announced in our November 2015 French Tax Update, the members of the lower house (Assemblée Nationale) had adopted, during the first phase of the parliamentary discussions of the 2016 Finance Bill, a change to the computation of the taxable basis of the financial transactions tax (FTT). NB: The FTT applies to the acquisition of certain defined French listed shares, at the rate of 20 basis points applied to the acquisition cost.

The current FTT rules provide, inter alia, that if the same relevant in-scope shares are purchased and sold on the same trade date, the tax basis refers to the excess, if any, of the shares purchased over those sold; accordingly, no FTT is due if the same number of shares are purchased and sold on the same trade date (the so-called intra-day exemption).

The change voted by the lower house would have resulted in the taxation of the acquisition of the gross number of shares purchased during a given trade date, i.e., the number of same shares sold the same day would not have been taken into account.

The original intention of the lower house was to introduce the new rules as from January 1, 2016; at the request of the Government, the house agreed to defer the application to December 31, 2016. By that time, the Government hopes that the European financial transactions tax would be adopted, with the consequence that the FTT would become irrelevant.

Although such extension of the FTT scope was eventually adopted as part of the 2016 Finance Bill, the Constitutional Court has ruled against it in its decision dated December 29, 2015, on the basis that only provisions with a budgetary impact for 2016 could be part in the relevant section of the 2016 Finance Bill. Accordingly, the intra-day exemption will continue to apply until any subsequent change of law.

FINANCE BILLS—TAXATION OF INVESTMENTS 

  • EXCEPTIONAL DEPRECIATION OF INVESTMENT BY BUSINESSES IN SMES 

Article 81 of the 2015 Amending Finance Bill adjusts for the second time the exceptional depreciation for investment in innovative small and medium-sized enterprises (SMEs), in order for this regime to comply with the EU rules on State aid following the authorization by the European Commission under a decision dated November 5, 2015 (SA.40725).

Under this regime, first introduced into article 217 octies of the FTC by the 2013 Amending Finance Bill, businesses (whatever their size) are allowed to spread the depreciation of investments in innovative SMEs over a period of five years (please see our January 2015 French Tax Update for further details).

The 2015 Amending Finance Bill amends the scope of the exceptional depreciation, by providing inter alia that qualifying innovative SMEs also need not to have been operating yet in any market or to have been operating in any market for less than 10 years following their first commercial sale. In addition, the exceptional depreciation is extended to investments in the so-called unregulated partnership companies (sociétés de libre partenariat) created by the "Macron" law for growth and activity.

To the extent this regime was pending authorization by the European Commission, the 2015 Amending Finance Law marks the definitive entry into force of this scheme, which aims to provide better access to funding for high-growth-potential undertakings.

  • AMENDMENT OF THE WEALTH TAX INCENTIVE FOR SME INVESTMENTS 

Article 24 of the 2015 Amending Finance Law also amends the French wealth tax (impôt de solidarité sur la fortuneISF) reduction applicable to certain qualifying investments into SMEs (ISF-PME Regime).

The ISF-PME Regime entails a reduction of 50 percent up to a limit of EUR 45,000 per year in wealth tax for individual taxpayers who subscribe directly into qualifying SMEs (or up to a limit of EUR 18,000 for investments made through an investment fund).

The first set of amendments to the ISF-PME Regime will prevent, in certain cases, those executives who previously had been able to reduce their wealth tax by investing in their own company. In this regard, investments made within the context of a capital increase of a company will no longer be eligible to a wealth tax reduction when the taxpayer is already a shareholder of the company. This type of eligible subscription will be possible only in certain very restrictive cases of follow-up investments. In addition, contributions in kind will no longer benefit from the ISF-PME Regime.

The second set of amendments aim at achieving compliance with the EU rules on State aid, following the European Commission's authorization dated November 5, 2015 (SA.40725). In a nutshell, the ISF-PME Regime is refocused on innovative SMEs. As such, to be eligible, companies will need to fulfill, at the time of the subscription, at least one of the following conditions:

not to have been operating in any market;

to have been operating in any market for less than seven years following their first commercial sale;

to require an initial risk finance investment that, based on a business plan prepared in view of entering a new product or geographical market, is higher than 50 percent of their average annual turnover in the preceding five years.

All current conditions pertaining to the definition of an SME for the purposes of the ISF-PME Regime (e.g., conditions pertaining to the size of the company or the listing of its shares) are maintained.

Finally, in addition to these conditions, the ISF-PME Regime (i) will no longer apply to undertakings in distress, and (ii) the total amount of eligible subscriptions made to an SME may not exceed EUR 15 million.

These amendments to the ISF-PME Regime apply for investments made as from January 1, 2016.

FINANCE BILLS—TRANSPARENCY AND REPORTING

  • COUNTRY-BY-COUNTRY REPORTING IMPLEMENTATION 

As announced by the French Ministry of Finance few weeks ago, and in accordance with Action 13 of the OECD BEPS Project, Article 121 of the 2016 Finance Bill implements the country-by-country filing requirement.

All multinational groups that (i) establish consolidated financial accounts and (ii) have an aggregate turnover in excess of EUR 750 million will have to file, within the 12 months following the end of their fiscal year, a specific report indicating the worldwide country-by-country allocation of the entities, activities, profits, tax liabilities, and other accounting and tax indicators (more details will be published in an administrative decree)

Such report will have to be filed by (i) French corporations at the head of a group comprising foreign entities or branches, and (ii) French subsidiaries forming part of a group whose head is not subject to a similar country-by-country reporting requirement.

Subject to reciprocity, the reports so filed could be exchanged by France within automatic exchange of information processes. The first reports will have to be filed by December 31, 2017 for fiscal year ending on December 31, 2016. Failure to file would give rise to a EUR 100,000 penalty.

It should be noted that the above country-by-country filing requirement has been validated by the Constitutional Court, which mentioned, in its decision issued on December 29, 2015, that a fully public filing could be contrary to the French Constitution insofar as it would restrict the entrepreneurship freedom.

  • AUTOMATIC EXCHANGE OF INFORMATION BY FRENCH FINANCIAL INSTITUTIONS 

Article 44 of the 2015 Amending Finance Bill includes several proposals to bring the filing requirements imposed upon French financial institutions in line with EU Directive 2014/107/EU (dated December 9, 2014, and amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation).

Under Article 1649 AC of the FTC, French financial institutions are required to file a specific declaration containing the information necessary to allow the mandatory automatic exchange of information as designed by the treaties entered into by France. Such specific declaration relies on both the outcome of the Global Forum on Transparency and Exchange of Information for Tax Purposes held in Berlin on October 29, 2014, and on EU Directive 2014/107/EU.

In order to allow the first exchanges of information as from 2017, the 2015 Amending Finance Bill proposes to authorize financial institutions to (i) operate automated processes to identify the relevant taxpayers, and (ii) collect all relevant data, including tax identification numbers and tax residency information for all account holders and controlling holders thereof.

  • MANDATORY DISCLOSURE OF APPLICABLE TAX RULES BY ONLINE MARKETPLACE OPERATORS

Applicable as from July 1, 2016, Article 87 of the 2016 Finance Bill requires that operators of online marketplaces, be they for the sale of goods, the provision of services, or the sharing of goods or services (plateformes de mise en relation par voie électronique en vue de la vente d'un bien, de la fourniture d'un service ou de l'échange ou du partage d'un bien ou d'un service), provide their users a fair and clear description of the tax and social obligations arising from the transactions carried out on the relevant form of marketplace they operate.

It should be noted that despite preliminary parliamentary discussions, no specific tax regime or fixed deduction has been adopted in connection with the income arising from such online marketplaces.

  • EU DIRECTIVE ON EXCHANGE OF TAX RULINGS

On December 8, 2015, Council Directive (EU) 2015/2376 (Tax Ruling Directive) was published in order to amend Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation by including advance cross-border rulings and advance transfer pricing arrangements.

In particular, Article 1.(1).(b) of the Tax Ruling Directive adds:

a definition for "advance cross-border ruling" (in essence, any agreement (i) issued, amended, or renewed by tax authorities, including in the context of a tax audit, or to a particular person or group of persons, (iii) concerning the interpretation or application of a legal or administrative provision, (iv) related to a cross-border transaction (see below) or to the question of whether or not activities carried on by a person in another jurisdiction create a permanent establishment, and (v) made in advance of the relevant transactions, activities, or returns);

a correspondingly very broad definition for "cross-border transaction" (in essence, a transaction where (i) not all of the parties to the transaction are tax residents in the Member State issuing, amending, or renewing the ruling, (ii) any of the parties to the transaction are simultaneously tax resident in more than one jurisdiction, (iii) one of the parties to the transaction carries on business in another jurisdiction through a permanent establishment and the transaction forms part or all of the business of the permanent establishment, or (iv) such transaction has a cross-border impact); and

a more classic definition for "advance transfer pricing arrangement" (in essence, any agreement issued, amended, or renewed (i) by tax authorities, including in the context of a tax audit, (ii) to a particular person or group of persons, (iii) to determine in advance of cross-border transactions between associated enterprises (a) an appropriate set of criteria for the determination of the transfer pricing for those transactions or (b) the attribution of profits to a permanent establishment).

Member States are required to implement the relevant domestic rules and tools by December 31, 2016, so that the automatic exchange may take place as from January 1, 2017.

  • DRAFT EU DIRECTIVES TO FIGHT BASE EROSION AND PROFIT SHIFTING

A draft Directive to fight base erosion and profit shifting is likely to be published within the course of January. Such draft Directive would inter aliaaim at implementing the conclusions of the OECD BEPS reports, in particular with respect to Action 2 (Hybrid Mismatch Arrangements), Action 3 (Controlled Foreign Companies Regimes), Action 4 (Financial Payments) and more specifically rules limiting the deduction of financial payments, Action 6 (Treaty Abuse) in order to work on a general anti-abuse rule (GAAR), and Action 7 (Permanent Establishment Status).

  • UPDATE OF THE FRENCH LIST OF NON-COOPERATIVE JURISDICTIONS

The French Ministry of Economy and Finance published on December 21, 2015 a decree under which the British Virgin Islands and Montserrat have been officially withdrawn from the list of non-cooperative jurisdictions (NCJ List).

The effect of the NCJ List is to trigger the application of a particularly penalizing set of French tax rules (e.g., 75 percent withholding tax on payments to such jurisdictions).

This removal is effective retroactively as of January 1, 2015. Taxpayers will be able to request a refund of withholding tax levied in accordance with these rules upon request to the FTA.

FINANCE BILLS—RESEARCH TAX CREDIT 

  • SPECIALIZED ADVISORY COMMITTEE 

Article 46 of the 2015 Amending Finance Bill creates a new advisory committee in charge of research tax credit matters (R&D Credit Committee).

The R&D Credit Committee will review disagreements between the FTA and taxpayers relating to the object and effective use of the expenses for which the research tax credit is claimed. Such disagreements will be forwarded to the R&D Credit Committee either upon the taxpayer's request or by the FTA. Only disagreements arising from tax reassessments (proposition de rectification) issued as from July 1, 2016, will be reviewable by the R&D Credit Committee.

FINANCE BILLS—TAXATION OF INDIVIDUALS 

  • PERSONAL INCOME TAX TO BE WITHHELD AS FROM 2018 

Personal income tax is currently directly declared and paid by individual taxpayers themselves. Article 76 of the 2016 Finance Bill proposes to switch to a withholding system as from January 1, 2018. Although the main features of the personal income tax system (e.g., progressive scale, basket rules, etc.) should not be modified by such switch, the specifics of the reform will be discussed during 2016 (the Government undertook to present a draft legislation by October 1, 2016), inter alia in order to determine the scope of the withholding (essentially salaries and similar income) and the treatment of the transition year (the current system entails an interval as the personal income tax declared and paid in a given year is based on the income of the previous year).

  • CONDITIONS OF THE PEA-PME REGIME RELAXED 

The PEA-PME regime (plan d'épargne en actions de petites et moyennes entreprises, PEA-PME Regime) created by the 2014 Finance Law is an enhanced version of the French stock savings plan regime (PEA), which provides for a specific personal income tax exemption applicable to French individual taxpayers on capital gains and distributions deriving from investments into certain qualifying SMEs.

Under the PEA-PME Regime, investments may be made only in securities issued by a company (listed or not) that, firstly, employs less than 5,000 persons and, secondly, has an annual turnover not exceeding EUR 1.5 billion or total assets not exceeding EUR 2 billion.

Article 27 of the 2015 Amending Finance Law extends the benefit of the PEA-PME Regime as from January 1, 2016 to investments into listed companies that fulfill the following conditions: (i) their market capitalization does not exceed EUR 1 billion, (ii) no corporate shareholder holds more than 25 percent of the share capital of the company, and (iii) the companies meet the above original conditions pertaining to the number of employees and turnover or total assets on a consolidated basis.

The PEA-PME Regime is also extended to investments into qualifying debt securities with an equity component (such as bonds convertible into or redeemable for shares).