This provision is aimed at modifying Article 219-I-ter-a, 2nd paragraph of the French Tax Code, which provides that the tax regime of long-term capital gains and losses does not apply to the shares of companies whose assets are mainly comprised of shares excluded from this tax regime (investment shares) or whose activity consists overwhelmingly of managing the same shares on their own behalf. In practice, this paragraph is aimed at shares in financial companies which manage portfolios for which application of the long-term capital gains or losses tax regime was excluded.
However, companies with such shares can receive tax-free dividends under the parent-subsidiary tax regime. In case of a subsequent sale of these same shares, through an exempted distribution, the parent companies could realize capital losses and deduct a short-term loss at the ordinary statutory rate on shares sold corresponding to the amount of dividends paid.
In order to avoid this type of transaction, the new paragraph makes capital losses deductible on a long-term basis if they were realized on such shares at the amount of the dividends received that created the right to the parent-subsidiary tax regime over the fiscal year of the sale and for the five previous fiscal years. The long-term regime will also apply to any provision posted for these shares at the amount of the dividends received over the fiscal year during which the provision was posted and for the five previous fiscal years.
There are equivalent provisions for sales of such shares in a tax group at the amount of the dividends deducted in accordance with the provisions of Article 223 B.