Share transfer duty - all change (again) - International Law Office

Existing regime
New regime


Hot on the heels of the changes introduced by the 2012 finance law, further amendments have now been made to transfer duties due on the transfer of securities. Under the new provisions, share transfers in listed and unlisted companies will be subject to a single rate of 0.1% instead of the three-band scale that has applied since January 1 2012. The new rules will mostly apply to transfers made from August 1 2012. The existing regime, which was introduced by the 2012 finance law, therefore applies only to transfers made between January 1 and July 31 2012.

Existing regime

The 2012 finance law made a number of changes to the current regime, including the following:

• The €5,000 cap on transfer duties on the transfer of shares was abolished;
• A three-band scale was introduced;
• New exemptions were brought in; and
• Share transfers in French companies that are completed abroad were made liable to transfer duties.

Rates
As from January 1 2012, the duties applicable to transfers of securities are as follows:

• 3% on the transfer of equity interests in companies whose capital is not divided into shares (eg, private limited liability corporate companies and partnerships);
• 5% on the transfer of interests in real estate companies;
• for share transfers in listed and unlisted companies:
  • 3% on the portion of the price below €200,000;
  • 0.5% on the portion between €200,000 and €500 million; and
  • 0.25% on the portion above €500 million.

Exemptions
In addition to existing exemptions, further exemptions have been introduced to cover specific operations. The following are now also exempt from transfer duties:

• the acquisition of securities carried out by a company as part of a share buy-back or a share capital increase;
• the acquisition of securities in companies that are under safeguard proceedings or in judicial administration; and
• intra-group transfers.

Territoriality
Certain share transfers in French listed or unlisted companies that are completed abroad now attract transfer duty, provided that they do not fall within any of the exemptions listed above.

New regime

Recent legislation has brought changes to the existing rules on transfer duties. Share transfers in listed and unlisted companies limited by shares will now be liable to a single rate of 0.1% instead of the three-band scale that has applied since January 1 2012. In addition, the exemptions have been amended to take into account a new tax on financial transactions and a new procedure that allows an unlisted company to buy back its shares.

The new provisions will apply to transfers completed from August 1 2012 onwards. Therefore, the current regime applies only to transfers effected between January 1 2012 and July 31 2012.

Amended rates
From August 1 2012 transfer duties are set at a fixed rate of 0.1% for the transfer of shares in listed or unlisted companies limited by shares. There is no cap on the amount of duties resulting from this rate. This fixed rate of 0.1% brings transfer duties into line with the new tax on financial transactions on transfers of listed shares.

The 0.1% duty also applies to transfers of shares in French-registered companies limited by shares, even if such transfers are effected abroad.

Rates for other transfers
The rate applicable to the transfer of equity interests in companies whose capital is not divided into shares (eg, sociétiés à responsabilité limitée and partnerships) remains unchanged at 3%.

The rate applicable to the transfer of interests in real estate companies also remains unchanged at 5%.

Exempted transactions
The exemptions for certain share transfer transactions have been modified to take into account the scope of the new tax on financial transactions and the new procedure for the buy-back of shares by unlisted companies. The other exemptions remain unchanged

Buy-back of shares by unlisted companies
Two limitations are introduced to the exemption that applies to the acquisition of securities carried out as part of a buy-back by an unlisted company of its own securities.

First, when a company redeems its own securities, only those securities which are to be transferred to members of a company savings plan are eligible for exemption from transfer duties. This restriction will apply to transfers made from August 1 2012.

Second, a new procedure has recently been introduced for unlisted companies to buy back their own securities, bringing unlisted companies into line with listed companies. Buy-backs of securities under this new procedure are not covered by the exemption from transfer duties. Such buy-backs remain liable to transfer duty at the fixed rate of 0.1% or under the three-band scale of 3%, 0.5% and 0.25%, depending on when the transaction is completed. This is the case even if the securities are to be transferred to members of a company savings plan. The new buy-back procedure became effective on March 16 2012.

As a result, only share buy-backs carried out by listed companies (regardless of whether the securities are to be transferred to members of a company savings plan) between March 16 and July 31 2012, and share buy-backs effected by listed companies and completed from August 1 2012 onwards (but only insofar as the securities are to be transferred to members of a company savings plan), will benefit from the exemption from transfer duty.

New tax on financial transactions
Transfer duty does not apply to transfers of securities that are subject to the new tax on financial transactions.

The new tax on financial transactions applies to securities issued by a French société anonyme admitted to trading on a French, European or foreign regulated market and whose market capitalisation exceeds €1 billion.

Intra-group and restructuring operations
Under the current regime, exemptions apply to transfers of securities only where the seller and the buyer are members of the same tax group (as 'tax group' is defined in the General Tax Code) and to transactions that qualify for the preferential tax regime applicable to contributions of a complete branch of activity.

Under the new rules, the scope of the exemptions is expanded to cover:

• transfers of securities between members of the same group of companies (within the meaning of Article L.233-3 of the Commercial Code); and
• transfers of securities as part of mergers that qualify for preferential tax treatment.

Other exemptions
A number of exemptions are left untouched by the most recent round of changes. These include:

• acquisitions of securities as part of a share capital increase;
• acquisitions of securities in companies that are under safeguard proceedings or in judicial administration; and
• dividend payments made in the form of securities.

In general, subscriptions of interests in certain types of investment fund (fonds communs de placement) and real estate investment funds (fonds de placement immobilier) are exempt from transfer duties, as are transfers of interests in venture capital investment funds (fonds communs de placement à risques). Transfers of interests in collective real estate investments funds (organismes de placement collectif immobilier) are, in principle, also exempt from registration duty.

For further information on this topic please contact Rhidian David or Cyrille Gaucher at Cabinet Hughes Hubbard & Reed by telephone (+33 1 44 05 80 00), fax (+33 1 44 05 80 54) or email (david@hugheshubbard.com or gaucher@hugheshubbard.com).