A director set up a holding company eight years ago to steer two trading subsidiaries. It genuinely directed them. He then sold one subsidiary. The price stayed in the holding company. He invested the cash, bought a rental building, took a minority stake in a friend's company. None of these decisions was improper. None was taken with tax in mind. On the day he sought to pass the group on, the French tax authorities told him his holding company had long since ceased to be an active holding company.
A holding company is never settled. Its tax status depends on what it does, what it owns and what it can prove, financial year after financial year. The parent-subsidiary regime, tax consolidation and active holding company status are neither boxes to tick nor three storeys of a single scheme. They are three autonomous regimes, governed by different thresholds and different logics. The question that matters is not how to set up a holding company. It is whether the one you own is still what you believe it to be.
A holding company serves three purposes, and one must know which is being pursued.
Bringing cash up from subsidiaries without tax friction, in order to reinvest it. Organising control of a group, by separating ownership of the capital from operational management. Preparing a succession, by placing the shares in a structure whose interests are more easily given away than the shares of a trading company.
These three aims call for different shareholding levels, different degrees of activity and different balance sheets. A holding company designed for cash and one designed for succession do not resemble each other. The first drifts naturally towards everything that disqualifies the second.
Absent any special regime, the profit made by the subsidiary bears corporate income tax, and the dividend passed up to the holding company bears it again. The parent-subsidiary regime, laid down in articles 145 and 216 of the French Tax Code, corrects this economic double taxation. Income from participations is left out of the parent's taxable profit, save for a flat add-back for costs and expenses set at 5% of the total income received. The regime requires, among other conditions, a holding of at least 5% of the subsidiary's share capital and retention of the shares for two years.
Tax consolidation, governed by article 223 A of the same code, pursues an entirely different aim: determining a single group result, by setting the profits of some companies against the losses of others. It requires a shareholding of at least 95%, that every company be subject to corporate income tax, and that the financial years coincide. It also brings the add-back for costs and expenses down from 5% to 1% on intra-group dividends.
5% on one side, 95% on the other. The first threshold is so low that it is reached without thinking. The second is so high that it excludes any group open to a manager, a minority shareholder or an investor. A director who anticipates a management incentive scheme or a fundraising must decide beforehand, not afterwards.
This is the heaviest question, because it governs not one regime but several, and because the answer may become no without any decision ever having been taken.
Long a purely judge-made notion, active holding company status received a statutory definition in the Finance Act for 2024, set out in article 787 B of the French Tax Code. A holding company is active where, beyond managing a portfolio of shareholdings, its principal activity is the active participation in the conduct of the policy of its group, made up of controlled companies carrying on an industrial, commercial, craft, agricultural or professional activity, and to which it provides, where appropriate and on a purely internal basis, specific services.
Three points deserve the director's attention.
What that status commands, it takes with it when it falls: the partial exemption of the Dutreil pact from inheritance and gift duties, the exemption from real estate wealth tax for business assets, access to certain capital gains regimes. And the activity condition must be satisfied not only on the day of the transfer, but throughout the retention undertakings.
The parent-subsidiary regime is a favourable regime, not a technique. The French tax authorities may refuse to apply it, on the basis of the abuse of law procedure of article L. 64 of the French Code of Tax Procedure, wherever the creation of an intermediate subsidiary is purely fictitious or has no purpose other than converting into dividends income that would otherwise have been taxed at the standard rate.
An active holding company that no longer directs anything. An intermediate subsidiary with no purpose of its own. A service agreement with no real consideration distinct from the director's corporate office. A chain of ownership whose industrial or family logic no one in the group can explain.
The recent decisions never sanction the holding company as such. They sanction the gap between what the structure does and what it claims to do. That gap does not arise from a decision. It widens through inertia, financial year after financial year. It only comes to light on a tax audit, that is, too late to correct it.
The Finance Act for 2026 created a tax on assets not allocated to an operating activity held by passive holding companies, codified at article 235 ter C of the French Tax Code. Twenty per cent a year, on the market value of certain assets kept in the structure for the personal enjoyment of its shareholder.
Three cumulative conditions, assessed at the financial year end: total assets of at least 5 million euros, passive income representing more than 50% of the company's income, and ownership of at least 50% by an individual or his family circle. The tax applies to financial years ending on or after 31 December 2026.
20% a year, unconnected to any cash flow whatsoever. This is not a revenue-raising tax, it is a deterrent. And falling within its scope requires no decision at all: a holding company set up to steer a group, whose share of passive income has crossed the halfway mark as the trading activity receded, falls into it without anything having been intended.
The taxable base is exhaustively listed in the statute, and its precise perimeter is already disputed. The administrative commentary has not been published. Two things are certain. The commencement date leaves a narrow window. And a restructuring decided in haste, without demonstrable economic justification, opens up an abuse of law exposure far more dangerous than the tax itself.
Setting up the holding company before settling the purpose it is to serve. Confusing the 5% of the parent-subsidiary regime with the 95% of tax consolidation. Electing for consolidation without having anticipated the future entry of a manager or an investor into the share capital. Claiming active holding company status without building the evidence for it, year after year. Allowing cash, investment property and uncontrolled minority stakes to dilute the predominance of the directing activity. Discovering in 2027, on reading a tax return, what the holding company has become.
A holding company is designed, and then maintained. Eight financial years of inattention are enough to make it lose everything for which it was created, without a single fault ever having been committed.
Lobe Law, a law practice specialising in tax law and group structuring based in Paris, France, reviews your situation and secures the tax status of your holding company. Book a consultation.