Unlike a decision of the “abuses of right Committee”, the tax administration has just enunciated that the Dutreil “pact” system (allowing a 75% reduction of the inherence rights) could apply to the shares of companies practicing a furnished renting activity.
The case concerned a “family-owned limited liability company” having a furnished renting activity with a capital allocated between the parents and their children.
On October 2010, the parents granted an inter vivos distribution of the company shares to their two children. The same day, the father left the management of the company to be replaced by his daughter. A Dutreil pact was set up for this transmission.
On December 2010, a capital increase was done by incorporation of the company’s current account owned by the parents.
Thereafter, the company purchased different buildings owned by the parents and “real estate non trading companies” owned by the parents and their children.
By deed dated on July 2011, the parents granted to their children a new inter vivos distribution of the company shares (received with the capital increase). This distribution benefited also from the Dutreil pact provisions.
The” abuses of right Committee” said that the Limited Liability Company had a furnished renting activity with no benefits, so it was a civil activity and not a commercial activity eligible to the Dutreil pact. Consequently, in this particular case, the Committee estimated that the administration couldn’t use the abuse of right’s procedure.
The administration contested this decision considering that there was an abuse of right for the reason that the taxpayer could invoke the doctrine of tax administration allowing him to benefit from the Dutreil pact system.
The administration invoked the interpretation of his doctrine which gives a wide definition of the commercial activity using the definition of the activities for the BIC (industrial and commercial profits) which takes into account several civil activities like the furnished renting.
The tax administration decision
“Considering that the transactions done between December 2010 et July 2011, after which the spouses got the same number of shares that before the commitment, just aimed to allow them to transfer their wealth to their children benefiting from a tax exemption, in contradiction with the lawmaker’s goal which is to support the transmission of companies and not the private wealth, the administration has reconsidered the tax exemption using the abuse of right’s procedure.”
The opinion of the tax administration could contribute to secure the transmission of companies’ shares practicing the furnished renting with or without benefits.