Current issues
Tax-Deferred capital gains taxations
There have been a number of unpleasant tax surprises in recent years for holders of shares that result from capital contributions and carry a tax deferred capital gain recorded at the time of the transaction.
These types of shares were in theory obtained in connection with a contribution made before 1 January 2000 or a contribution made on or after 14 November 2012 to a company controlled by the contributor (Article 150-0 B ter of the CGI).
According to the tax deferral rule, the capital gain recorded at the time of the contribution only becomes taxable on the subsequent sale of the resulting shares. But any changes in the capital gains tax rules that may be made between these two events can lead to unfair situations:
- Holders of shares resulting from a contribution made before 1 January 2000 who sold those shares between 2013 and 2017 saw their capital gains become subject to the progressive income tax scale, while at the same time they were denied the deductions for long-term holding even though those deductions were intended to mitigate its effects;
- Holders of shares resulting from a contribution made on or after 14 November 2012 to a company controlled by the contributor who sell those shares are, on the contrary, subject to the taxation rules in force on the day the contribution was made. They do not receive the benefit of any improvements in the rules, such as the flat tax, which became effective on 1 January 2018.
Bornhauser’s position is simple: taxpayers should always be able to opt for the more favourable regime: the one that existed on the date of the contribution, or the one in effect on the date the shares are sold.
We have filed multiple lawsuits in this respect on behalf of our clients and have successfully passed the procedural hurdles that will allow us to plead our case before the European Court of Justice and then, if successful, before the Constitutional Council.
We therefore invite anyone who has been or is likely to be taxed excessively on tax-deferred capital gains to contact us to join our case and benefit from the outcome.
