FRANCE Law and Practice Contributed by: Rima Maitrehenry, Fabrice Rymarz, Charles-Xavier Vincenti and Stein Mpassi Loufouma, Racine
French AIFs Exempt From CIT (“French Exempt AIFs”) Scope of CIT exemption These French Exempt AIFs are set up as cor - porate entities and are, in principle, liable to CIT but benefit from an exemption because of their regulatory status or their corporate purpose (notably FPS set up as SICAV and OPCI/OPPCI incorporated as SPPICAV). The CIT exemption regime may be subject to conditions: in particular, SPPICAVs must comply with annual dividend distribution requirements. As this category of French AIFs is considered opaque for tax purposes, the investors will be deemed to receive French-source dividends. CIT-exempt AIFs set up as SICAV do, however, have the possibility to “ventilate” (so-called cou- ponnage ) their profits and gain so that they keep their underlying nature (real dividends, interest, capital gains) and their source (French or foreign source) when distributed to investors. Individual investors resident in France Fund investors are taxed on proceeds gener - ated by the French Exempt AIF on the date of their effective redistribution, not on the date the income is received by the French Exempt AIF. Dividends distributed by the French Exempt AIF are subject to a 12.8% French flat tax ( prélève- ment forfaitaire unique – PFU) and to social security contributions at the current overall rate of 17.2%, resulting in a total taxation of 30% (up to 34% for investors with a significant annual taxable income). A French Exempt AIF that ventilates its income can also distribute interest/capital gains to its investors. The taxation rate is the same, how - ever.
by the AIF in such SPVs. Leveraged funds are often used in real estate transactions. For unleveraged funds, borrowings are often used to bridge capital calls. Cash is borrowed by the AIF from a lender, mainly in anticipation of a capital call. This type of borrowing takes the form of a revolving credit facility to be reim - bursed within a maximum period of 364 days through capital calls made by the AIF’s inves - tors. Lenders are generally granted pledges on the AIF’s bank account and investors’ undrawn commitments. Other alternative fund financing structures have been developed in recent years, such as NAV financing secured with the AIF’s underlying assets or the issuance of unsecured preferred equity. Entering into such type of financing requires amendments to the AIF’s legal docu - mentation in order to waive any indebtedness (if feasible for AIFs that are not subject to a legal indebtedness restriction). For AIFs that are dedicated to retail investors, such amendments require the prior approval of the AMF, which could prove difficult to obtain for such type of In most cases, French AIFs are not subject to taxation in France as they either benefit from a French corporate income tax (CIT) exemption or are not subject to CIT, depending on their legal and regulatory status. There are, however, a few exceptions. borrowing scheme. 2.6 Tax Regime Taxation (if any) generally occurs at the investors’ level on income received from the AIFs (ordinary income and/or gain derived from investments) based on their own tax regime.
152 CHAMBERS.COM
Powered by FlippingBook