The finance laws passed at the end of last year provided an opportunity for the public authorities to specify in particular certain concepts related to the exemption of the wealth tax from securities held in professional circles.
Part of the finance laws is devoted to the wealth tax (ISF). More specifically, these texts introduce an anti-abuse mechanism directed against holding companies that allow holders to optimize the ceiling of the TFR. Moreover, during the vote on the budget, the public authorities wanted to provide a number of clarifications on the modalities of benefiting from an exemption from tax on securities held in professional circles. Measures that come into effect for the TFR starting in 2017.
Anti-abuse of wealth tax ceiling clause
The cap on the ISF limits the amount of tax payable. The total amount formed by the ISF, the income tax and the social security contributions can thus not exceed 75% of the income of the taxpayer of the preceding year. If this percentage is exceeded, the TFS due for the year concerned is then reduced by the amount of the surplus.
The government found that some taxpayers used this device to reduce their TFR by artificially reducing their income in the calculation of the cap by dividend capitalization in an interposed holding company. In practice, dividends are collected by the company, which does not redistribute them to the taxpayer who controls it.
In order to limit the use of this type of practice, tax authorities can now proceed with the reinstatement of income distributed to a company liable for corporate taxation controlled by the debtor in the income used to calculate the ceiling of the taxable person, ISF, to the extent of the fraction corresponding to an artificial reduction in the income taken into account. To do so, it must prove that the existence of the company and the choice to resort to it have the main purpose of evading all or part of the ISF benefiting from an advantage that runs counter to the objective of the Cap.
In practice: to establish this proof, the tax authorities can refer to the way of life of the taxpayer and how to finance it. It may, for example, retain the fact that the taxpayer uses the loan via lines of credit secured by assets taxable by the ISF or draws on its savings.
EWB exemptions of securities held in professional circles
Units or shares of a company with an industrial, commercial, craft, agricultural or liberal activity are not included in the tax bases of the ISF, up to 75% of their value, when their owner carries on business Principal in that company as an employee or corporate officer, that is to say, according to the law of finance, that this activity gives rise to a normal remuneration which gives him more than half of his professional income.
In addition, can benefit from a total exemption from EWB, in respect of professional property, the owner of shares or shares of a company subject to corporation tax that fulfills a number of conditions. These include the exercise of a managerial function and the collection of a normal remuneration which must represent more than half of his professional income. The Finance Act stipulates that the normal nature of the remuneration must be assessed in comparison with similar remuneration paid in respect of comparable positions in the undertaking or in similar undertakings established in France and in relation to professional income such as Wages or BICs, excluding, in particular, income from land and movable property.
Source: Les Echos