Registration duties (the French but more expensive version of the UK’s stamp duty) on the transfer of shares or other interests in companies and partnerships have, for a long time, been an additional source of revenue for the French State. This is even more so since January 1, 2012 with the coming into force, as part of the Budget Act (Loi de finances) for fiscal year 2012, of revised rules increasing registration duties with respect to certain companies and partnerships. This bad news has, however, already been superseded by the adoption, last February 29, of further amendments to the registration duties regime which, as explained below, have a positive or negative impact, depending on the purchase and sale transaction involved.
Before January 1, 2012
In a nutshell (and without getting into all of the details), registration duties for sale of shares or other interests in companies or partnerships were as follows until December 31, 2011:
- Registration duties payable on a sale of shares (actions), that is securities forming part of the share capital of joint stock companies and certain limited partnerships (sociétés anonymes, sociétés par actions simplifiées, sociétés en commandite par actions, collectively Joint Stock Companies, were equal to 3 % of the higher of (i) the purchase price of the shares (plus all debts taken over by the purchaser) and (ii) their market value (Taxable Price), up to a maximum amount of € 5,000. However, sale of shares of listed Joint Stock Companies were only subject to registration duties when the sale was evidenced in a sales contract or other document; in other words, normal trading of listed securities was exempted.
- Registration duties payable on a sale of interests (parts sociales) in other companies and partnerships (sociétés à responsabilité limitée, sociétés civiles, sociétés en nom collectif), with a capital comprised of “interests” as opposed to “securities” (collectively Other Companies), were also equal to 3 % of the Taxable Price. However, there was no maximum amount but a (low) fixed-rate rebate applied on the sale price, equal to € 23,000 times the number of parts sociales sold over the total number of parts sociales forming part of the share capital of the company or partnership.
- Registration duties payable on a sale of shares (actions) or interests (parts sociales) in real estate companies, were equal to 5 % of the Taxable Price for the shares or interests, with no maximum amount nor rebate. For purposes of registration duties “Real Estate Companies” are non-listed companies, wherever incorporated, with a majority of assets comprised of real estate properties located in France, or rights or interests in non-listed entities having a majority of such real estate assets.
Since January 1, 2012
- The privileged regime applicable to sales of shares of Joint Stock Companies – where registration duties were capped at € 5,000 – has been changed; the € 5,000 cap has been deleted and the applicable rate now varies in accordance with tranches of the Taxable Price:
- 3 % rate for the first tranche below € 200,000;
- 0.5 % rate for the tranche from € 200,000 to € 500,000; and
- 0.25 % rate for the tranche above € 500,000.
In addition, it is now clear that registration duties are payable on all sales of shares in Joint Stock Companies with their head office in France (subject to a tax credit under certain circumstances) when the sale is made outside of France.
- Rules applicable to Other Companies remain the same. The new rules make the Joint Stock Companies less attractive than they were from a registration duties standpoint. Nevertheless, their regime remains the most favourable under many circumstances, and lawyers and financial advisers will no doubt continue to consider whether or not, when the target is an Other Company, it should be transformed in a Joint Stock Company before a proposed acquisition. Such transformation has become quite a routine operation, although it remains subject to a formal process. As an example, consider the sale of 200 shares of a Joint Stock Company with a share capital divided into 500 shares, for € 7,500,000:
- Since January 1, 2012: registration duties, which before were equal to € 5,000, are in the amount of € 25,000: [3 % x € 200,000] + [0.5 % x € 300,000] + [0.25 % x € 7,000,000] = € 25,000
- If the company was an Other Company, registration duties would amount to € 224,724: 3 % x [€ 7,500,000 - (23,000 x 200/500)] = € 224,724
- The rate of registration duties with respect to the sale of shares of, or interests in, a Real Estate Company remains the same but the rules relating to the calculation base have been tightened. The registration duties are now levied (i) on the market value of the French real estate assets or rights owned by the Real Estate Company, less debts relating only to the acquisition of such assets or rights, plus (ii) the gross market value of other assets of the Real Estate Company. In practice, this means that debts incurred after the acquisition, including for renovation of the real estate, can no longer be deducted.
On February 29, 2012, a new act amending the previous Budget Act (Amending Act) was adopted by the French Parliament, and contains further changes, scheduled to come into force in August 1, 2012, to the registration duties rules for sale of shares of Joint Stock Companies. As noted above, this Amending Act is welcomed or not, depending on the company the shares of which are sold.
It is certainly bad news with respect to the acquisition, for consideration, of shares of listed companies (wherever listed) with their head office in France and a market capitalization above € 1 billion on January 1 of the fiscal year considered (Listed Companies). A new tax on financial transactions relating to shares and other securities giving access to the capital or votes of a company, equal to 0.1 % of the acquisition price, will apply to such acquisition. “Acquisition” means purchase in a broad sense, and includes purchases through the exercise of stock options. However, various tax exemptions are provided for, including in connection with securities financing transactions (as defined in Commission Regulation (EC) No 1287/2006 of 10 August 2006) and transactions between companies forming part of the same group. Such transactions are fully exempted from registration duties. A detailed analysis of the conditions of this new tax, as well as the other two taxes introduced by the Amending Act, that is the tax on high frequency trading and the tax on credit default swaps (CDS) with respect to European Union Member States, will be provided by us in another bulletin.
The reverse is true for transactions on shares of Joint Stock Companies other than Listed Companies where there is a clear benefit: the tax rate will be lowered to 0.1 % which, applied to the above example, will take the registration duties down to € 750.
However, in light of the upcoming elections, it remains to be seen if the above revised rules will or not apply as from August 1, 2012.