Creating a Holding Company from the Bottom Up: Tax Benefits and Risks

Extract

[...] A strategically advantageous fiscal method for groups The creation of a holding by the bottom is based on a structuring approach for groups, allowing them to clarify their activities and optimize their taxation. It first improves the specialization of functions within the group entities before facilitating a beneficial fiscal optimization for the group's financial resources An effective structuring through the specialization of functions The separation between the holding company and operational entities improves organizational clarity. The holding centralizes strategic functions, such as investment decisions, and enables more specialized management of subsidiaries. [...]

[...] The creation of a holding by the bottom allows for the exercise of strategic control over the group through a cascading participation mechanism. An associate holding 51% of the holding retains effective control over the entire group, even if their direct participation in the subsidiaries is reduced to 26% (Article L. 233-3 of the Commercial Code). This flexibility is particularly advantageous and effective for family groups or in the event of business succession. In fact, it promotes the sustainability of groups while reducing potential conflicts between heirs. [...]

[...] All previous tax losses accumulated by the contributing company before the transaction are then cancelled, depriving it of a major financial benefit. In addition, this loss does not only concern the losses, but also the provisions for risks and charges, which become immediately taxable. This reduces the financial flexibility of the group and decreases the economic interest of such an operation for companies wishing to optimize their taxation. In addition, the registration fees on partial contributions of assets can reach 3 to of the value of the transferred assets, depending on their nature and the origin of the contributors (article 810 of the CGI). [...]

[...] These drawbacks mainly appear through the rigorous administrative requirements that can lead to requalification risks and the heavy financial impacts that this device can generate for groups Des exigences administratives engendrant des risques de requalification Le respect des conditions pour bénéficier des avantages fiscaux implique des démarches juridiques et fiscales complexes. Ce processus, s'il est mal maîtrisé, peut entraîner de graves conséquences financières. The creation of a holding from the bottom requires a rigorous coordination. The procedures include the change of the company's object or real activity, an update of the statutes and a possible tax approval in case of doubt on the application of the favorable regime (article 210 B of the CGI). These procedures can lead to significant costs. [...]

[...] Significant financial impacts for the affected groups Article 221 of the CGI provides that the previous deficits of a company are cancelled in the event of a change in real activity. This risk is particularly high when creating a holding company from the bottom up, as the filialization of a branch of activity can be considered as a significant abandonment or transfer of activity. Thus, in the SARL Final case, the Council of State considered that the initial activity should not become marginal compared to the new activities, otherwise the deficits are definitively lost (CE July 2007, n°288484). [...]