FRANCE Law and Practice Contributed by: Bertrand Barrier, Anne Toupenay-Schueller and Cyril Deniaud, Jeantet
At the Corporate Level At the corporate level, the transferred assets must con- stitute a complete and autonomous branch of activity ( branche complète d’activité ) capable of independent operation utilising its own resources. The transaction must be supported by valid commercial rationale and not be primarily motivated by tax avoidance consid- erations. Furthermore, the structural terms must pre- serve the French tax authorities’ ability to tax deferred capital gains upon future realisation. At the Shareholder Level At the shareholder level, roll-over relief is available, enabling shareholders to defer taxation until the sub- sequent disposal of shares received in the spin-off entity. Shareholders with qualifying stakes of at least 5% of voting rights are subject to a mandatory three- year holding period. Regarding registration duty, since 1 January 2019, qualifying spin-off transactions have benefited from an exemption from registration duty. 5.3 Spin-Off Followed by a Business Combination Under French company law, it is possible to have a spin-off, immediately followed by a business com- bination. However, such a transaction must not be carried out for tax purposes alone. Although a spin- off followed by a combination can be legally carried out, the tax theory of abuse of rights could allow the tax authorities to reverse the tax consequences of the transaction if they consider that it was carried out for the sole purpose of avoiding a certain tax burden. The abuse-of-rights theory is applicable to artificial arrangements or transactions that exploit technical interpretations of regulations in ways that contradict their intended objectives; their only purpose being to circumvent or minimise the tax burden that would ordinarily arise from the individual’s genuine situation or business activities. In such cases, the tax authorities will adjust the rel- evant amounts and impose certain penalties.
sell their shares, avoiding broader business liabilities. Founders may still bear limited post-closing indemni- fication exposure, particularly for specific risks such as tax, environmental, or employee-related matters. Customary M&A practice includes an escrow or holdback for 12–24 months to secure indemnifica- tion obligations. However, the growing use of war- ranty and indemnity (W&I) insurance has reduced escrow amounts. W&I insurance provides coverage for breaches while allowing sellers faster access to proceeds, usually with a deductible of up to a certain percentage of transaction value. Spin-offs are customary in France’s technology indus- try. Major research institutions actively encourage and support spin-off creation, in cutting-edge fields like AI or digital trust. Academic spin-offs have developed considerably in France since the 2000s, with academic incubators supporting more than 4,000 companies over 15 years. Key drivers for considering a spin-off include: • technological capabilities and the ability to com- mercialise innovative products to meet market needs; • the acquisition of marketing skills, access to financing (both public and private), entrepreneurial orientation, and support programmes from aca- demic incubators; and • to help bring new technologies to market by scal- ing them up and creating products that satisfy unmet market needs. 5.2 Tax Consequences Spin-off transactions in France may benefit from tax- neutral treatment at both the corporate and share- holder levels pursuant to Article 210 B of the French Tax Code. This elective regime provides comprehen- sive tax deferral, subject to strict compliance with statutory requirements. 5. Spin-Offs 5.1 Trends: Spin-Offs
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