What is a Dutreil Pact?
The principle established by Renaud Dutreil is as simple as it is effective: transfers by death or donation of shares or stocks in a company are exempt from transfer taxes up to 75% of their value, provided they have been subject to a collective or unilateral commitment to retain ownership prior to the transfer (and of course still in effect on the date of said transfer).
The conditions:
- Company:
The company must carry out an industrial, commercial, artisanal, agricultural, or professional activity, or be a managing holding company.
- Management position held by one of the signatories:
One of the associate signatories of the collective retention commitment or one of the donees, heirs, or legatees must exercise in the company, during the duration of the collective commitment and for the three years following the date of transfer, their main professional activity if it is a partnership (referred to in Articles 8 and 8 ter of the CGI) or an effective management function (manager / President / CEO / Chairman of the Supervisory Board / member of the executive board).
- Minimum holding of signatories:
Non-listed company -> 17% of financial rights and 34% of voting rights
Listed company -> 10% of financial rights and 20% of voting rights.
Among the questions regularly asked: what if the financial rights are split? And what about in case of split ownership of shares? These questions attest to the subtleties that the Dutreil Pact regulations do not always address.
The commitments:
- Collective (CRC):
The company’s shares must, initially, be subject to a collective retention commitment (at least two signatories therefore) for a minimum duration of 2 years by the donor or deceased. This period begins to run from the registration of the deed recording it. It must be taken by the donor (or the deceased), for themselves and their gratuitous beneficiaries, with other associates.
Useful clarification. This commitment can now be unilateral: single-person companies are therefore also concerned by this transmission tool.
- Individual (IRC):
The individual commitment to retain shares must be made in the inheritance declaration or in the deed of donation by the heirs, donees, or legatees for a minimum duration of 4 years. This period begins to run from the expiration of the collective retention commitment (which will therefore continue until its term once the donation has occurred or the succession has been opened).
Point of attention. One of the signatories of the individual or collective retention commitment must exercise a management function within the company, during the duration of the collective commitment + 3 years after the transfer of the shares.
Functioning of the tax regime:
- The Dutreil Pact allows for a 75% exemption on the value of shares or stocks transferred by donation or succession (Article 787B of the CGI)
- It can be combined with the legal allowance of €100,000 per child every 15 years (Article 777 of the CGI) as well as with the 50% reduction of duties owed if the donor is under 70 years old at the time of transfer (Article 790 of the CGI)
- Numerical example:
For a donation of a company worth €10M:
-> with a valid Dutreil Pact in effect on the day of transfer: the duties owed by a child inheriting the rights would be €332,678 (applying the 75% exemption, the €100,000 allowance, and the reduction of duties from Article 790 of the CGI).
-> without a Dutreil Pact: the duties owed by a child inheriting rights in the company would then be €1,989,894! A sufficient reason for the child to be forced to sell the company…and urgently, given the payment deadlines for duties but also to avoid a potentially significant loss of value in the meantime.
Operation during the Pact:
- Shares under the Pact can be contributed to a Holding company during the CRC
- The company whose shares are directly or indirectly transferred must provide several certificates
– on the day of the transfer of shares, a certificate attesting that the CCA is ongoing and that the holding thresholds have been observed up to that date;
– after the transfer by gift, a certificate either in response to a request from the administration, or spontaneously at the end of the individual share retention period
- Challenge:
The partial exemption from transfer taxes may be challenged when the CCA or ICA has not been respected due to:
– the sale for consideration of the company’s shares (excluding cases of transfer between signatories);
– non-compliance with the threshold conditions at any time during the commitment period;
– the contribution of shares subject to commitment (except for exceptions);
– the condition related to the minimum duration of exercising a management function within the company has not been respected.
In this case, the beneficiary(ies) are then required to pay the additional transfer taxes, plus late payment interest.
In the case where the transferee or donee is another signatory of the collective commitment, the partial exemption is only challenged in proportion to the shares sold or given, those retained by the transferor being unaffected for their part.
Special cases:
Non-managing holding company:
In cases where the operating company is held through a holding company and the qualification of managing holding company cannot be retained, the 75% exemption from transfer taxes can nevertheless be applied when the company has the status of “intermediary company”.
For this, it must hold the eligible company within the limit of two levels of interposition.
- The collective commitment is made by the intermediary company and concerns the shares of the operating company.
- The individual retention commitment here applies to the shares of the intermediary company that were transferred. Nevertheless, the management function must be performed within the operating company.
- The 75% exemption from transfer taxes will only apply to the fraction of the value of the pure holding company’s shares in the capital of the eligible company, subject to the collective commitment.
- The number of shares held must remain unchanged at each level of interposition throughout the duration of the collective and individual commitments.
- The interposition of a second Holding or the contribution of shares under commitment to a company during the commitment period is possible under certain conditions
Managing holding company:
Managing holding companies are considered as operating companies, carrying out a commercial activity, and can therefore benefit from the Dutreil scheme. For this, they must participate in the conduct of the group’s policy or provide administrative, financial, accounting or legal services to their subsidiaries. If the holding company simultaneously carries out another non-eligible activity, the main activity must be that of management.
Dutreil “catch-up” agreements:
In case of death without commitment (e.g., single-person company): a commitment can be deemed acquired when the donor has, for at least two years preceding the transfer of shares, respected the conditions of thresholds and management function. The deemed acquired regime is also applicable in case of indirect holding, but limited to one level of interposition.
If no commitment is made before the donor’s death: the heirs or legatees can conclude a collective retention agreement within six months following the death (then called a post mortem agreement).
And what about furnished rentals in all this: eligible or not eligible for CCA?
The answer is officially NO, since the Finance Act for 2024 (i.e., the latest Finance Act to date).
After two essential rulings from the Court of Cassation (June 1st, 2023) and the Council of State (September 29, 2023), opening the way for Dutreil Agreements to the furnished rental activity, the tax administration decided to encourage the legislator to react. Done.
Furnished rentals are “definitively” considered as activities excluded from the scope of activities eligible for Dutreil Agreement.
From a tax law perspective, this is nevertheless debatable and fuels many doctrinal debates. Doesn’t tax law consider this activity as falling under commercial profits…?
Beyond this question, various members of parliament regularly revive the debate on the abolition and/or limitation of the effects of the Dutreil regime. It therefore represents, both today and since its creation on August 1, 2003 (Law No. 2003-721), a topical mechanism. Even during the debates at the end of 2024, numerous amendments materialized attempts to modify or even abolish the system.
The Dutreil Pacts, which have become complex and require careful drafting, have nevertheless been subject to recent welcome relaxations.
These Pacts are a fundamental tool in our legal arsenal, allowing for the transmission and preservation of family businesses; it would be regrettable if our country were to abandon them.
