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Hardening of transfer of losses in the case of restructuring

On the 27 November 2012, the French tax authorities released guidelines (BOI-SJ-letter-20121127 and linked documents) in which they clarified the regime of the transfer of losses in the case of restructuring (e.g. a merger).

Under the domestic law, losses realized by an acquired company may not be carried forward by the absorbing company. However, under article 209-II of the French Tax Code, in case of restructuring under the favourable regime of article 210 A of the French Tax Code, losses may be transferred to the absorbing company if the approval authorization from the Tax Administration is granted. Currently, the approval authorization is granted by the Tax Administration if:

-   the operation is realized under article 210 of the French Tax Code;
-   the operation is justified in terms of economic motivations; and
-   the activity causing deficits for which the transfer is requested continues for a minimum period of 3 years.

New conditions apply for companies whose fiscal year ends on or after 4 July 2012. Thus, to qualify for an approval authorization issued under article 1649 nonies of the French Tax Code, the activity that caused deficits or interest for which the transfer is requested:

-   must not have been significantly changed (especially in terms of customers, employment, implemented means of operating effectively, nature and volume of activity) during the period for which the deficits and interest have been identified; and
-   must be pursued by the absorbing company or companies for a minimum period of 3 years, without any significant changes during this period (especially in terms of customers, employment, implemented means of operating effectively, nature and volume of activity).

However, deficits and interest are excluded from the benefit of this regime, which occur from:

-   management of movable assets by financial holdings; and
-   management of immovable property assets.

The new conditions to benefit from the approval authorization indicated above are extended to restructuring under a fiscal group regime (under article 223-I of the French Tax Code).

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