Legal background: Stocks held in a PEA enjoy under certain conditions, tax exemption on dividends and capital gains. Eligible stocks are acquired with the cash invested in the plan by the individual holder, meaning that stocks already held by the taxpayers cannot be transferred to the plan.
Scheme in place: The taxpayer holds stocks in an ordinary portfolio and wants to transfer such to the PEA so that to enjoy the corresponding tax benefits. He creates an interposed company to which he sells the stocks, and the taxpayer re-purchases the same stocks to the interposed company using the cash invested in the PEA. Or, the taxpayer sells the stocks to another person who re-sells same stocks to the initial taxpayer, using the cash in the plan. The stocks end-up lodged in the PEA.
Outcome of audit: The FTA considers that the successive transactions have for sole purpose to get the PEA’s tax benefits, contrary to the lawmaker’s intention when creating the PEA tax regime, that was to encourage the increase in investments in companies’ equity. The FTA challenges the transactions as being artificial on the grounds of the abuse of law procedure, leading to the closing of the plan and the full taxation of capital gains and dividends on the stocks lodged in the plan.