This measure’s purpose is to prohibit deductions of capital losses from cancellation of short-term shares in case of a merger of a subsidiary within two years of its acquisition.
The measure is aimed at the situation where a parent company which receives dividends from its subsidiary creating a right to benefit from the parent-subsidiary tax regime and which, within two years of the shares’ acquisition, takes over its subsidiary distributing dividends. If the value of the merged company’s shares is less than the acquisition price notably due to its subsidiary’s distribution of dividends, the parent company will then realize a true merger loss.
The new legislation provides that capital losses from cancellation of shares will no longer be deductible at the amount of the dividends received since the shares’ acquisition and the proceeds of which created a right to the parent-subsidiary companies tax regime.
This new measure is aimed at fighting against the divestment schemes which, for a company subject to the corporate income tax, consisted of acquiring companies also subject to the corporate income tax whose assets are mainly comprised of liquidities, sending these liquidities to a higher level in the form of dividends and then merging the “emptied” company within two years of acquisition. The “emptied” company” thereby combined the exemption of the dividends received, pursuant to the parent-subsidiary tax regime, with the short-term deduction from capital losses from the cancellation of shares. The new legislation therefore puts an end to this scheme.
This new legislation therefore completes the anti-abuse measure provided by the 2011 Amending Finance Act, which had already put an end to the possibility of combining the benefit of the parent-subsidiary tax regime with the deduction of short-term capital losses realized in share exchanges resulting from a merger or a split up (modification of Article 145-1-c of the FTC).