The main tool for business transfer, the so-called “Pacte Dutreil” system is very probably one of the most interesting tax systems.
Often little known, business leaders often think that this system only applies in the presence of child buyers.
The reality is quite different. The “Dutreil Pact” does not necessarily require having a child successor to be applicable. As we will see, this device can in fact be used quite simply as a means of transmitting a substantial sum of money virtually tax-free.
What is the “Dutreil” device?
The so-called “Pacte Dutreil” System, covered by article 787 B of the General Tax Code, allows the application of a 75% reduction on the market value of securities of 'an operational company to a donee (child for example) or an heir for the calculation of free transfer rights.
In addition, when the donee is under 70 years old, the amount of rights thus obtained is reduced by 50%.[1]
There is no limit on the value of the securities transmitted, which makes this system particularly advantageous.
For example, it is possible to pass on securities worth €5,000,000 to your two children by paying around €100,000 in transfer rights.
Below €850,000, the transfer of securities to two children entails almost no transfer rights when the donor is under 70 years old.
What are the conditions to benefit from the “Dutreil” system?
Condition linked to the exercise of the company
Only companies carrying out an industrial, commercial, artisanal, agricultural or liberal activity are eligible for the Dutreil Pact. This therefore excludes, for example, companies whose sole purpose is to manage their real estate or movable assets.
It is possible that another activity may be carried out, provided that it is not predominant.
Condition linked to the retention of titles
In addition, the company manager must sign with other partners a collective commitment to retain the securities for a period of at least two years. All of the securities included in this commitment must relate to at least 17% of the financial rights and 34% of the voting rights (if the company is not listed). The company manager can also sign this type of pact alone as long as he alone meets the required thresholds (so-called “unilateral” conservation commitment).
During this commitment, the partners who signed the Dutreil Pact can transfer securities included in the conservation commitment to each other. On the other hand, they cannot in principle transfer the conservation commitment to third parties.
The transfer of securities to third parties under the collective commitment may also have a negative impact on the other signatories if the thresholds of 17% of financial rights and 34% of rights voting are no longer respected. Indeed, in this hypothesis, unless the third party joins the Dutreil Pact, which implies restarting the collective commitment for a period of at least two years, all of the signatories will lose the benefit of the Pact. Dutreil.
Provided that the transmission takes place during this commitment (whether on the occasion of a donation or upon death), the latter will benefit from the advantage of Dutreil Pact.
The donees or heirs must then undertake to respect the collective commitment until its end. However, the conditions of detention will be stricter for them than for the signatories. Indeed, the donees or heirs will not be able to transfer, even to a signatory of the Dutreil Pact, the titles transferred, under penalty of seeing the Dutreil advantage called into question with regard to the title transferred to the signatory.
The donees or heirs must also undertake, once the collective or unilateral conservation commitment is completed, to respect a new four-year conservation commitment, but this time on an individual basis. This implies that non-compliance with this condition only has an impact for the transferor and not for the other donees or the signatories.
Condition linked to management function
Among the signatories of the “Dutreil Pact” must necessarily be the manager of the company (in particular manager, president, general manager) or, if the company is subject to tax on income, a person carrying out their main professional activity there.
Moreover, at the time of transmission, one of the signatories, or one of the donees or heirs having benefited from the advantages of the Dutreil Pact, must exercise this function for at least three years from transmission and until the end of the collective or unilateral retention commitment if this duration is greater.
Thus, the business manager can easily pass on his titles to his children while benefiting from the advantages of the Dutreil Pact and continue to exercise management functions himself.
Furthermore, it is entirely possible to allow the company manager to continue to retain voting rights and financial rights despite the transfer of securities to aid of preferred shares.
Dutreil commitment deemed acquired
Note that it is possible to transmit titles while benefiting from the advantages of the Dutreil Pact without even having signed a collective or unilateral commitment and to allow the donees or heirs to immediately enter the four-year individual conservation commitment.
In this scenario, however, it is imperative that the donee or heir exercises a management function.
The Dutreil commitment deemed acquired also implies that the threshold conditions of holding the securities and management function of the deceased or donee have been respected for at least two years.< /p>
Dutreil Post Mortem Commitment
Finally, in the event of the death of a partner, if the conditions of the pact deemed acquired are not met (for example if the deceased was not a manager or did not not respected the holding threshold conditions), the heirs can enter into a “post-mortem commitment”. The heir(s) will then have to respect the holding period conditions of the collective or unilateral commitment of two years, then the individual commitment of four years. The heir(s) must also respect the management functions or the holding threshold seen previously.
Thus, as we saw previously, after the individual conservation commitment, the donees or heirs are free to transfer the titles to anyone. It is therefore entirely possible to pass on all or part of your shares to your children in order to allow them to receive all or part of the sale price within the framework of very attractive taxation.
Other mechanisms, such as share stripping, can sometimes also be used.
However, in the context of operational companies, the Dutreil Pact mechanism seems preferable to us (it is also possible, under certain conditions, to combine the two mechanisms).
This article has been deliberately simplified for educational reasons. It cannot replace a personalized consultation. In particular, it does not deal with reporting obligations, non-compliance with which could lead to the benefits of the Dutreil Pact being called into question.