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11.2. Tax Consequence of Business Emigration, Corporate Inversions and the Cessation of Business

An emigration of business would lead to a cessation of activities, which, pursuant to Arts. 201 and 202 of the CGI, triggers the following consequences:

  • taxation of the operating profits realized since the end of the previous tax period. The corresponding taxable income should be assessed under the standard rules;
  • recapture and taxation of profits benefiting from a deferral of taxation. These include (a) provisions which become purposeless as a result of the cessation of business, and (b) other deferred taxable profits, such as capital gains realized upon previous mergers or partial asset contributions benefiting from a favorable tax regime, so-called "equipment subsidies", or insurance indemnities which had also benefited, under certain conditions, from a deferral of taxation;
  • recognition of latent capital gains relating to fixed assets. The capital gains taxable upon the cessation of business correspond to the difference between the fair market value of the relevant assets and their net accounting value (accounting value less depreciation, if any). The gains may, in particular, relate to the company's goodwill, which is generally shown as nil in the balance sheet and which should, accordingly, be valued at the date of the liquidation. (This valuation is generally carried out by an expert but there are no requirements in this respect.) If the capital gain relates to participations held for more than 2 years, it may benefit from the reduced corporate income tax rate (the condition that the after-tax gain should be credited to a special reserve does not have to be satisfied in the case of a liquidation/cessation of business).

Moreover, the transfer (as from 12 November 2012) to another EU Member State, of the registered office or of a permanent establishment, together with all or part of the assets, of a company liable to corporate income tax, results in the taxation of the latent capital gains and of the deferred tax in relation with the transferred assets. In respect of the payment of tax, the company has a choice between:

  • the payment of the total amount of the tax due, within 2 months of the transfer; or
  • the immediate payment of a fifth of the total amount of the tax due, the residual amount to be paid in equal installments over the following four years.

However, when the transfer does not affect all assets, it does not trigger any taxation in France with respect to the assets that continue to remain on the balance sheet of the French company or of the French permanent establishment.

The same rules apply when the transfer is made to a Member State of the European Economic Area that has signed a mutual assistance agreement with France. When the transfer of the registered office or of the permanent establishment is made to a State other than those listed above, this event triggers the same consequences as a cessation of activity.