France

In their published guidelines, the French Tax Authorities state that, as a matter of principle, a transfer of corporate seat implies the creation of a new company from a tax perspective (dissolution of the transferring company and constitution of a new company), which can therefore trigger, subject to applicable double tax treaties, French transfer taxes and other duties in respect of the assets deemed contributed to this new company (e.g. under certain conditions and subject to territoriality rules, transfer taxes would apply at the rate of 5% of the fair market value of the assets in the case of a transfer of a going concern or clientele).

This position of the French Tax Authorities (which remains to be confirmed by the French courts) is, in our view, highly debatable when, from a legal standpoint, the transferring company maintains its legal personality upon the transfer of its seat. Moreover, where the re-domiciliation falls within the scope of the Mobility Directive, the French Tax Authorities’ position would be inconsistent with that Directive given its provision that the transfer of corporate seat shall be analysed as a “cross-border conversion”, where the transferring company retains its legal personality, and could not therefore be assimilated, from a tax perspective, to a contribution or a sale to a new company.

In practice, if the corporate law position is that the re-domiciling company retains its legal personality, it may be advisable to submit a prior ruling to the French Tax Authorities requesting confirmation as to whether or not French transfer tax liabilities arise.

French incorporated companies are prima facie French tax resident unless they fall to be treated as non-resident under an applicable double tax treaty (for example, if the place of effective management of the company is located outside France).

So, unless the re-domiciling company had to be treated as resident in a different country under an applicable double tax treaty, it would, in principle, automatically become French tax resident when it changes its corporate seat.

In respect of re-domiciliations from another EU Member State or eligible EEA State, the French Tax Authorities’ published guidelines generally envisage a step-up for the assets transferred into France, “in order not to subject to tax a capital gain which would already have been taxed in the other State”.

Would this mean that a step-up is unavailable if there is no taxation in the departure State, for example, because of the absence of a taxable event or a domestic exemption? The guidance does not explicitly address this question, and it might be advisable to submit a request for a prior ruling to the French Tax Authorities.

The position in respect of inward re-domiciliations from countries other than an EU Member State or eligible EEA State is not covered in the French Tax Authorities’ guidelines.

To our knowledge, this question remains to be confirmed by case law.

If the re-domiciliation falls within the scope of the Mobility Directive or falls outside the scope of the Mobility Directive but, from a legal standpoint, the transferring company maintains its legal personality, it could be argued – although it would not necessarily be consistent with the position taken in respect of the step-up – that it should not re-set the holding period of assets (including shares) held by the re-domiciling company (which would, in practice, for example, mean that the two-year holding period required to benefit from the French participation exemption regime would be computed from the date on which the company acquired the shares, not from the (later) re-domiciliation date).

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The French Tax Authorities’ guidelines on this point are the same as for inbound re-domiciliations (see answer to Question 1) and, for the same reasons, we consider this position to be questionable, especially where, from a legal standpoint, the transferring company maintains its legal personality and where the re-domiciliation falls within the scope of the Mobility Directive.

However, even if the French Tax Authorities’ position is confirmed, French transfer taxes may not apply in practice.

Although it will have to be confirmed, French transfer taxes should notably not apply where certain assets (e.g. going concern, clientele, real estate property) can be considered as being contributed by a company subject to French CIT – except to the extent that these “contributions” could be regarded as deemed “sales” for tax purposes in consideration for the assumption of liabilities. In that latter case, French transfer taxes and other duties could apply, subject to territoriality rules, unless the assumption of these liabilities can be attributed to assets not subject to French transfer taxes applicable on sales (such as cash or receivables).

We would expect that, on re-domiciliation, the company would normally cease to be French tax resident and become tax resident in the country to which it has re-domiciled, and the following comments are made on this basis. Different considerations would apply if, following the re-domiciliation, the re-domiciling company continued to have its place of effective management in France, and this situation is not discussed here.

The CIT consequences of an outbound re-domiciliation differ depending on whether the company retains a PE in France. So, as a first step, it will be crucial to determine whether the re-domiciling company will retain a PE. This can be uncertain, notably for holding companies and, depending on the circumstances, it may therefore be advisable to seek a formal ruling from the French Tax Authorities on this point before the re-domiciliation.

If the re-domiciliation is to another EU Member State or eligible EEA State and the re-domiciling company retains a French PE, the re-domiciliation should not be treated as the termination of a business and should, consequently, not trigger any French CIT consequences. However, to the extent that, while maintaining a French PE, certain assets are transferred abroad, additional considerations apply. First, latent capital gains on the transferred assets may be subject to French CIT. For fixed assets, the taxpayer may then choose between immediate payment of the French CIT charge or instalment payments over five years (the French Tax Authorities consider that the French CIT due on the lump sum taxation pursuant to the French participation exemption regime cannot benefit from the instalment payment regime – this position is, however, debatable in light of recent case law). Secondly, the transfer of the assets can, in certain circumstances, trigger the “change of activity” rule pursuant to which, notably, the profits of the current fiscal year are subject to tax and unused carried-forward tax losses are cancelled from the re-domiciliation date.

If the re-domiciliation is to another EU Member State or eligible EEA State, but the re-domiciling company does not retain a French PE, the re-domiciliation is treated as a termination of business implying, notably, the taxation of latent capital gains as described above, the taxation of untaxed profits and forfeiture of carried-forward tax losses. The same regime should apply if the re-domiciliation is to a country other than another EU Member State or eligible EEA State, even though a French PE is retained (although the possibility to opt for instalment payment in respect of gains on the transfer of fixed assets is not available here). Arguments may, however, exist to avoid at least some of these consequences if, upon the transfer, the company maintains it legal personality and a French PE is retained. But it is advisable that taxpayers submit a ruling request to the French Tax Authorities to confirm the position.

If the re-domiciliation is to an EU Member State or eligible EEA State, it should not trigger any French withholding tax according to the French Tax Authorities’ current guidelines, even if the transferring company does not retain a PE in France (this treatment would, however, have to be confirmed with the French Tax Authorities if the company does not retain its legal personality).

If the re-domiciliation is to a country other than an EU Member State or eligible EEA State, the withholding tax treatment is likely to depend on whether the company retains a PE in France. If it does not retain a French PE, there would be a deemed distribution to its shareholders equal to the profits (if any) for the current financial year plus reserves and all other retained earnings (whether capitalized or not), and this deemed distribution would attract French tax, including by way of withholding as far as non-French residents are concerned (subject to applicable double tax treaties).

In contrast, if the re-domiciling company retains a French PE and retains its legal personality, it is arguable that there should not be a deemed distribution (despite the fact that, from a tax perspective, the French Tax Authorities generally consider that the re-domiciliation entails a termination of business and the creation of a new company). But it is advisable that taxpayers submit a ruling request to the French Tax Authorities to confirm the position.

If a French PE is maintained following the re-domiciliation, then, as a matter of principle, French branch tax may be applicable, subject to double tax treaties and the EU/EEA domestic exemption.

Following the re-domiciliation, dividends should generally be taxable in France only to the extent that the recipients are French tax-residents. This position would, however, need to be carefully reviewed, in particular if the re-domiciliation was not treated as giving rise to a deemed distribution.

The impact of the re-domiciliation on the French tax consolidation group should also be considered. If no French PE is maintained and the re-domiciling company is a subsidiary of the group, it will generally leave the tax group as a result of the re-domiciliation, or the group will be terminated if the re-domiciling company is the parent company, with the corresponding consequences (notably, taxation of past operations which were previously neutralized). If a French PE is maintained, there are arguments to consider that the re-domiciliation does not have an impact on the tax group under certain conditions, at least if the re-domiciliation is made within the EU or an eligible EEA State and does not lead to a cessation of business.

If a French PE is maintained, the question of the application of double tax treaties in the case of a triangular situation (state of source of the income, state of residence of the PE and state of residence of the separate company) has not yet been fully resolved.