A company director contributed the shares of his company to his holding company in 2023. The transaction was sound, the relief secured, the timetable under control. The buyer signed in March 2026. It is not the rules of 2023 that apply to him, but those introduced by the Finance Act for 2026. It is not the date of the contribution that governs, it is the date of the sale.
The Finance Act for 2026 has tightened the conditions of article 150-0 B ter of the French Tax Code. The reinvestment requirement rises from 60% to 70% of the sale proceeds, the period in which to carry it out from two years to three, the holding period for reinvested assets from twelve months to five years, and the range of eligible investments narrows. These rules apply to sales of contributed shares taking place on or after 21 February 2026.
Three situations are affected. The director who has already contributed his shares and whose holding company has not yet sold. The director preparing a contribution ahead of a sale already under negotiation. And the director whose holding company has sold since 21 February 2026 and whose reinvestment period is now running under the new rules.
A director contributes the shares of his trading company to a holding company subject to corporate income tax which he controls. The capital gain on the contribution is computed, but its taxation is deferred as of right. The holding company then sells the shares to a buyer and receives the proceeds with no immediate tax charge.
The deferral is not an exemption. It is a deferred tax debt, whose survival depends on conditions the taxpayer must satisfy for years. It ends, among other events, on the sale, redemption, repayment or cancellation of the shares received in exchange for the contribution, and on a transfer of tax residence outside France.
Those in force at the sale. This is the most widely misunderstood point of the reform.
The provisions introduced by the Finance Act for 2026 apply to sales of contributed shares taking place on or after 21 February 2026, whatever the date of the contribution. A structure put in place in 2023 or 2024, whose holding company signs with a buyer today, falls under the new rules.
Sales completed before that date remain governed by the previous regime, including as regards the reinvestment obligations flowing from them.
A director whose holding company still holds the contributed shares must therefore revisit his plan. The percentage he had budgeted for is no longer the right one, the deadline has changed, and the range of investments he had identified may well have closed.
Two situations, and only one gives rise to an obligation.
The requirement used to be 60%, and the period two years. The legislature has therefore granted an extra year in which to invest, and taken back ten points of freedom. Thirty per cent of the proceeds, and no more, now remain at the holding company's free disposal.
For the definition of an eligible activity, the statute now refers to the one used for the income tax reduction granted on subscriptions to the capital of small and medium-sized enterprises, set out in article 199 terdecies-0 A of the French Tax Code. It also expressly excludes the management by the holding company of its own property portfolio.
That cross-reference brings with it exclusions the regime did not previously know. Financial activities are excluded, as are the generation of electricity yielding guaranteed income, property activities, the construction of buildings for sale or letting, and the management by a company of its own securities or property portfolio.
The assets or securities acquired by way of reinvestment must moreover be held for five years, whatever the type of reinvestment. That period was previously twelve months.
Where the reinvestment takes the form of a subscription for units in a private equity fund, the holding company becomes dependent on the fund itself: at the end of a five-year period, the fund's assets must satisfy an investment quota of 75%. Failure to meet that quota brings the deferral to an end, even though the holding company has scrupulously discharged its own obligations. The director thereby places his tax position in the hands of a fund manager over whom he has no control.
A significant share of the reinvestments made over the past decade has gone into property. That said, the classification of borderline activities, furnished letting, active holding companies, mixed activities, cannot be read off any web page. It is assessed on the articles of association, the turnover and the reality of the business. It is that classification, and nothing else, that determines whether the deferral survives.
The deferral comes to an end, and the capital gain becomes taxable.
The statute adds one detail that changes everything. Late payment interest runs from the date of the contribution of the shares, not from the date of the breach. It is charged at 0.2% per month, that is 2.4% a year.
A director who fails to reinvest 70% of the sale proceeds therefore does not merely pay the tax he had deferred. He pays it increased by interest running from the very outset of the transaction. Over seven years, that increase approaches 17% of the gain.
Such reassessments do not necessarily stem from any fraud. They often stem from a reinvestment the holding company was unable to carry out in time, having failed to identify an eligible investment.
Yes, and this is the least known trap of the whole operation.
The contribution may include a cash balancing payment, provided it does not exceed 10% of the nominal value of the shares received. Below that threshold, the gain is taxed to the extent of that payment, in the year of the contribution. Above it, the gain is taxed in full.
Now, the French tax authorities take the view that an earn-out indexed to the business of the contributed company, where it is paid otherwise than in shares of the holding company, forms part of that cash balancing payment. If it takes the total above the 10% threshold, the deferral originally obtained is called into question and the gain on the contribution becomes immediately taxable in full.
A director who accepts an earn-out two years after his contribution may therefore destroy a deferral he believed to be definitively secured. The fate of the clause depends on how it is drafted, and that drafting is negotiated before the sale agreement is signed.
No, and this is the point most structures overlook.
The statute did not carry over the condition, developed by the courts before it was codified, that the sale proceeds must not be made available to the contributor. Its silence is not a permission.
If the transaction results, in one way or another, in the contributor recovering the sale proceeds, the French tax authorities retain the power to act on the ground of abuse of law. Large dividend distributions and capital reductions following the sale are therefore to be avoided, even where the holding company has reinvested 70% of the proceeds.
A director may thus comply with the statute to the last euro and still lose his deferral. The dividing line is written in no statute. It is assessed on the actual flows between the holding company and its shareholder.
It can, but the periods have changed.
Where the recipient of the gift controls the holding company after the gift, the deferred gain is transferred to him. The deferral falls away if he sells, contributes, redeems or cancels the shares within six years of acquiring them. That period is extended to eleven years where the holding company carried out its reinvestment by subscribing for units in a private equity fund. The statute reserves certain situations, including the recipient's incapacity.
These periods were each a year shorter. A gift planned on the old timetable, followed by a sale by the recipient in the fifth or the tenth year, now triggers a tax charge no one had anticipated.
The right timetable for a gift cannot be deduced from the statute. It depends on the date of the contribution, on the nature of the reinvestment made by the holding company, and on the recipients' own horizon.
Not necessarily. When the Finance Act for 2026 was referred to it, the Conseil constitutionnel, the French constitutional court, confined itself to reviewing the constitutionality of the procedure by which the Act was adopted. The tightening of the contribution-and-sale regime was not examined on the merits. It may therefore be challenged by way of a priority question of constitutionality.
That relieves no one of the duty to apply the statute. It does mean that litigation brought against a reassessment of the deferral may, where appropriate, also reach the rule itself.
What the statute will never tell you
It will not tell you whether the activity you have in mind is eligible. It will not tell you how to draft an earn-out clause that does not destroy your deferral. It will not tell you what cash you can take out of your holding company without it being seen as recovering the proceeds. It will not tell you when to make the gift.
A tax deferral is not an acquired advantage. It is a tax debt held in suspense, and the Finance Act for 2026 has hardened the conditions on which it survives, at a time when many holding companies still hold the shares contributed to them.
Lobe Law, a Paris law practice specialising in tax law and business sales, reviews your situation and secures your tax deferral. Book a consultation.