Family transmission: changes in the Dutreil pact

PACTE law promises to facilitate family transfers, notably by relaxing the rules of the Dutreil pact. What are the expected new advantages?

Family transmission and the Dutreil pact

Today, a family transmission free of charge is regulated by the texts of the Dutreil pact. These provisions reduce the cost of inheritance or transfer taxes, i.e. the taxes related to a donation. Established by law n° 2003-721 of August 1, 2003, the Dutreil pact allows for tax relief following the death or a donation made by the owner of a company to a family member. This reduction applies to the value of the company – shares or stocks – or to the assets attached to the commercial operation of a sole proprietorship.
Read also: With the Pacte Dutreil, improvements but no simplifications

How does family transmission work?

In both cases, the Dutreil pact offers an exemption from inheritance or transfer taxes up to 75% of the value of the shares or assets. This means that the new company director must pay transfer taxes calculated on a quarter of the company’s value. In return, he/she must respect certain conditions:

• it can only be an industrial, commercial, craft, agricultural or liberal enterprise
• in the case of a company, the shares must be subject to a collective retention commitment of at least 2 years
• on at least 34% of the financial rights or 20% if the company is listed on the stock exchange
• each of the heirs undertakes to keep the securities transmitted for at least 4 years
• at least one of the heirs must have a management or other position in the company as his main activity

What are the expected developments?

The administrative steps to benefit from this tax relief are relatively heavy. Both for the transferor and for the beneficiaries. This is why the Dutreil pact is revised in order to facilitate the transfer of a family business. The PACTE law “for the growth and transformation of companies” was definitively voted on April 11, 2019. It relaxes the conditions of application of the Dutreil Pact. From now on:

• the collective undertaking to retain the company’s shares covers 17% of the financial rights and 34% of the voting rights
• the system has been extended to transfers of one-person companies
• during the collective retention agreement, if one of the beneficiaries sells or gives his or her shares to another signatory of the agreement, the tax advantage is not called into question
• in case of contribution of the shares to a holding company during the collective retention commitment, the tax benefit is also maintained

Read also: The PACTE law revises the transmission of PMENote

The Pact law facilitates the family transmission but also the transmission of the company to employees, as well as the financing of a takeover. However, the modalities and specificities remain very technical. The implementation of the new Dutreil Pact is not within the reach of everyone. It is advisable to work with a lawyer, a tax specialist or an expert in business transfer to ensure the good conduct of the procedures, especially in front of the administration.
Contact Actoria consultants, experts in business transfer.