Newsletter July 2025

Revenue threshold and capital gains exemption: the Paris court rules on the inclusion of exceptional transactions

To benefit from the capital gains exemption provided under Article 151 septies of the French General Tax Code (CGI), the revenue threshold not to be exceeded (€250,000 for full exemption in agricultural or commercial activities, €350,000 for partial exemption) generally includes all income related to the business. But what about exceptional transactions, such as the sale of fixed assets?

The Paris Administrative Court of Appeal has ruled on this matter. In a decision dated March 28, 2025, the court clarified that all transactions generating revenue related to the company’s usual business model must be included in the threshold calculation, whether they are regular sales or items classified as “exceptional income” in accounting. For example, in the case of an agricultural contracting business, the sale of equipment used in normal operations is to be taken into account, regardless of its classification as an exceptional item.

This position aligns with that of the French Conseil d’État (decision of July 26, 2023), which had adopted a similar interpretation regarding social contributions.

However, it contradicts administrative doctrine, which generally excludes fixed asset sales from the threshold calculation, considering them isolated transactions. Nonetheless, under Article L. 80 A of the French Book of Tax Procedures, taxpayers may continue to apply the more favorable administrative position when it conflicts with case law.

Furnished rentals: CFE and residence tax apply under specific conditions

The tax treatment of furnished rentals, particularly short-term rentals, has recently been clarified by the French government.

In two ministerial responses published on June 3, 2025, the government specified its position on the simultaneous application of the cotisation foncière des entreprises (CFE – business property tax) and the taxe d’habitation on secondary residences (THRS).

A property rented out furnished for short stays may be subject to both taxes if, as of January 1 of the tax year, the owner retains enjoyment of the property. Furnished rental is deemed a professional activity, justifying liability for the CFE. At the same time, if the owner is considered to have use of the property, they are also liable for the THRS. The central criterion is effective enjoyment of the property. Case law interprets this broadly: the mere ability to choose whether or not to accept tenants is enough to establish that the owner has use of the property.

However, THRS liability can be avoided by proving a total absence of private use as of January 1. This may involve, for instance, entrusting the property’s management to a professional under a mandate that prohibits any personal use by the owner.

Certain exemptions may also apply, particularly for properties with a rental value below a set threshold or for owners with low rental income. Additionally, the CFE may be partially or fully waived depending on local government policies, as municipalities can adjust this local tax.

Property owners are therefore advised to consult their local tax office to determine the exemption rules applicable to their specific situation.

Dutreil Pact: BOFiP update exceeds expectations

As a reminder, the Dutreil pact allows, under certain conditions, for partial exemption from transfer duties on gratuitous transfers of businesses, particularly family-owned ones.

This scheme applies not only to operational companies but also to “holding animatrices” (active holding companies), provided they play a genuine coordinating role within the group.

On May 30, 2024, the French tax administration updated its official guidelines (BOFiP) following the 2024 Finance Act to clarify the eligibility of such structures for the Dutreil regime. This update goes beyond minor technical adjustments: it clarifies and strengthens the eligibility criteria.

The concept of the “holding animatrice” now has a legal definition. In addition to managing its equity interests, the company must actively contribute to the group’s strategy and provide internal services (legal, financial, administrative, etc.) to its subsidiaries. Conversely, a company merely managing its own assets is excluded from the scope. A mixed activity is still permitted, provided the coordinating role remains the principal activity.

The guidelines also refine the definition of subsidiary control, a necessary condition for recognizing a group coordination role. Control is no longer assessed solely on legal grounds (majority shareholding or voting rights), but also based on shareholder structure, using a more economic and functional approach.

Another major development is the relaxation of the method used to assess the principal nature of the coordinating activity. It is now accepted that this condition is met if the value of the assets used for group coordination (such as cash reserves, properties operated by subsidiaries, or internal receivables) accounts for more than 50% of the holding company’s total assets. This global, non-proportional evaluation enhances the clarity of the regime.

These clarifications provide greater legal certainty for transfers involving coordinating holding companies. However, a potential reform limiting the scheme to strictly professional assets remains under discussion in an uncertain political climate.

As a result, it is advisable not to delay transfer plans in order to secure the current benefits of the Dutreil pact.