How to calculate the capital gain of a company subject to income tax
Tax regime applicable to partnerships​
Companies subject to income tax, which are covered by article 8 of the General Tax Code, also called partnerships, are not liable for corporate tax. This includes SNCs and SCIs as well as all capital companies having opted for income tax (SARL, SAS, etc.). In practice, the partners are directly liable for income tax in proportion to their share of the profits in the company (or for corporation tax if the partner is liable for this tax under the < a href="https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000031815581/" target="_blank">article 238 bis K of the general tax code). This rule applies even in the absence of effective distribution of profits.
Naturally, the day these profits are distributed, they are not taxed again.
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Conversely, when the company generates a deficit, the partner can directly take this deficit into account when calculating his income tax even though the partner did not fill it. This deficit can then either be charged to his other income if the partner carries out a professional activity in the company or carried over to profits of the same nature made over the next six years in the opposite case (article 156 I 2 of the CGI).
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If the partner is required to make up the deficit, this will not constitute a charge deductible from his income.
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We can then understand the problem that this tax regime can create in the event of a transfer of shares.
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Indeed, the sale price of the shares will necessarily take into account the net book value of the company which itself depends in particular on previously realized and undistributed profits (or loss carryovers). In the absence of adjustment, undistributed profits would be subject to double taxation: a first time when they are made by the company, a second time when the shares are sold. Deficits could also give rise to double deduction.
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The "Quemener" adjustment
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To remedy this, the judgment says "Quemener" has provided for certain adjustments (Council of State, February 16, 2000, 133296). Although this judgment did not relate to shares in predominantly real estate companies, the application of its principles was extended to the latter by the judgment of Council of State of March 9, 2005, No. 248825.
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Thus, for the calculation of the taxable capital gain in the event of a transfer of shares, it is appropriate to:
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- increase the acquisition price by the amount of taxed and undistributed profits in order to avoid these profits being taxed twice: once at the time of recognition of the profit , once at the time of the transfer of the shares (the price being necessarily increased by this profit).
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- Reduce the acquisition price by the amount of distributed profits
Indeed, it is also necessary to foresee the hypothesis in which these profits would subsequently be distributed to the partner. We have seen that profits were not taxed at the time of their distribution. If we did not take this distribution into account, the partner would benefit from an undue advantage: even though he had received this profit, this profit would not have been taxed. Certainly, it will have been taxed the year it was generated by the company. But this imposition will have been neutralized via the increase in the acquisition price. It is therefore also necessary to provide that the acquisition price is reduced by the amount of distributed profits
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- Reduce the acquisition price by the amount of deficits generated by the company and which have not been filled by the partner. This deficit in fact gave rise for the first time to being taken into account in the taxable income of the partner in the year in which it was formed. In the absence of adjustment, this deficit would reduce the amount of taxable capital gain (or create a capital loss) and would therefore create a double tax advantage.
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- increase the acquisition price by the amount of the deficits covered by the partners. Indeed, the partner who decides to make up a deficit with his own funds cannot deduct this contribution from his taxable income. It would therefore be unfair for him to pay tax on the part of the transfer price linked to this contribution.
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Please note, as previously mentioned, these principles only apply to companies subject to income tax. SCIs having opted for IS are therefore not affected by this system. This was recently recalled by the Administrative Court of Appeal of Bordeaux on October 15, 2020.< /a>
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This mechanism is therefore quite complex. This complexity being linked to a gap between the tax apprehension and the accounting apprehension, a way of remedying it would potentially be to provide in the statutes that the profits will be immediately paid to the credit of the partner's current account (current account in accounting sense and not the partner's bank account of course...) and to predict conversely that the current account would be debited with the deficit.
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Maître Nicolas Rozenbaum, tax lawyer, is at your disposal regarding any request for tax assistance, both in terms of advice and tax litigation.