Tax optimization of a French company acquisition

Any French company acquisition needs to be tax optimized by your French lawyer.

The mechanism of fiscal leverage implies that the holding company borrows to acquire securities of the target French company.

The tax levy advised by your French lawyer will imply that:

– the French holding can repay the loan with the target’s dividends without it suffering double taxation;
– and can deduct expenses related to the debt subscribed for the French company acquisition.

A tax option exists in France which enables the French holding subject to the corporate tax to limit the tax burden on dividends to 5% of their amount.

Moreover, the interests of the debts incurred by the French holding company in the course of business are part of deductible expenses by nature of its taxable income for corporate income tax. In practice, the deduction of interest expense may lead to the recognition of tax losses, to the extent the French holding company has no other income than the dividends which are tax exempted on 95% of their amount.

Optimising the tax leverage then goes through the use of one of the following:

– The option for tax consolidation regime which allows tax consolidation of the results of the two companies;
– Quick merger of the holding company and its target;
– Activation of the holding company, which becomes a “mixed” holding;
– The transformation of the target company into a tax transparent company (so-called “Wild tax integration”).

The tax impact of a French company acquisition must therefore be analyzed and considered before any acquisition.  Consult a French lawyer for this complex deal structure.