The Dutreil Scheme is a tax mechanism provided for under Article 787B of the French General Tax Code (CGI), allowing the transfer of shares in family-owned companies carrying on an industrial, commercial, artisanal, agricultural, or professional activity, with a 75% exemption from transfer taxes on the value of the shares transferred.
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The Dutreil Scheme: A Tax Mechanism to Facilitate the Transfer of Family-Owned Companies and Groups
The application of this tax regime is subject to certain conditions (see our dedicated article), including the requirement that the business activity be industrial, commercial, artisanal, agricultural, or professional. Moreover, to account for common situations in which operational activities are conducted by subsidiaries under the supervision of an “active” holding company, the regime has been extended to cover the transfer of companies whose principal activity consists of actively participating in the management and strategic direction of their group, composed of companies that are directly or indirectly controlled and engaged in industrial, commercial, artisanal, agricultural, or professional activities.
In addition, the Dutreil Scheme is subject to the taking of collective retention commitments over the shares in the years preceding the transfer, or, failing that, within six months following the decease of the transferor.
A Court Decision in Line with the Dutreil Scheme’s Objective of Promoting Intergenerational Transfers of Operational Businesses
In the case at hand,1 a taxpayer sought to benefit from the provisions of Article 787 B, CGI in the context of the inheritance of shares in a holding company following the death of her grandfather.
The tax authorities challenged her claim, arguing that she had failed to demonstrate the operational nature of the companies held by the holding at the date of decease, thereby preventing the application of the Dutreil Scheme to the transferred shares.
On appeal, the court upheld the tax authorities’ position, ruling that the operational status of the subsidiaries must be assessed as of the date of the event triggering the tax, i.e., the date of the deceased’s death.
Before the French Cour de cassation, the taxpayer challenged this interpretation, arguing that, for inheritance tax purposes, the taxable event should be determined as of the filing of the inheritance tax return rather than the date of decease. She further contended that the lower courts should have assessed whether the real estate activities carried out by the subsidiaries were of a commercial nature and thus eligible for the Dutreil Scheme.
Relying on Article 720 of the French Civil Code and Article 787 B, CGI, the Court held that, in the context of a transfer by inheritance, the operational nature of the companies must indeed be assessed as of the date of decease. The Court further noted that it is the taxpayer’s responsibility to demonstrate that the subsidiaries of the transferred holding company actively carry on an industrial, commercial, agricultural, or professional activity eligible under the regime—which she failed to prove in this case.
This ruling appears consistent with the goal of the Dutreil Scheme, which is to encourage and support the intergenerational transfer of operational family-owned companies and groups, rather than purely asset-holding companies. The decision closes the door to an interpretation that would have allowed heirs to take advantage of the delay between the deceased’s death and the filing of the inheritance tax return to “operationalize” a purely asset-holding company that does not meet the activity criteria under Article 787 B, CGI.
Often regarded as a key mechanism for preserving France’s SME sector, the so-called Dutreil Scheme (Pacte Dutreil) provides for a significant reduction in transfer taxes when a business is passed on to the next generation by way of inheritance or gift.
The application of this regime is, however, subject to strict conditions set out in Articles 787 B (in respect of transfers of shares in companies) and 787 C (in respect of transfers of sole proprietorships) of the French General Tax Code (Code général des impôts). Compliance with these conditions by both the transferor and the beneficiaries, together with a clear understanding of the undertakings they entail, is essential to ensure the proper application of the regime at the time the transfer occurs and to avoid any tax reassessments.
It should also be noted that the Dutreil Scheme is frequently challenged. In this respect, the forthcoming Finance Act will need to be monitored closely.
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Exemption from Transfer Taxes under the Dutreil Scheme: Conditions Applicable to All Transfers
Which Transfers May Benefit from the Dutreil Scheme?
The transfer may occur either upon the decease of the original owner (inheritance) or by way of a lifetime gift.
What Conditions Apply to the Transferred Businesses or Companies?
Whether the transfer concerns a sole proprietorship or a company, the business activity carried on as a principal activity must be industrial, commercial, artisanal, agricultural or professional in nature.
Businesses or companies whose activity is predominantly civil—such as the management of private assets—are therefore excluded from the scope of the regime.
Can the Transfer of a Holding Company Benefit from the Dutreil Regime?
As a matter of principle, pure holding companies are excluded from the scope of the Dutreil Regime. However, pursuant to Article 787 B of the French General Tax Code, holding companies that act as active holding companies (holdings animatrices) are deemed to carry on a commercial activity.
This includes holding companies whose main activity, in addition to managing a portfolio of shareholdings, consists in actively participating in the management and strategic direction of the group they head, composed of companies that are directly or indirectly controlled and that carry on an industrial, commercial, artisanal, agricultural or professional activity.
Eligibility Conditions Specific to the Transfer of Company Shares or Equity Interests
The benefit of the Dutreil Scheme, in the context of the transfer of shares or equity interests in a family-owned company, is subject to a double commitment requirement:
A collective commitment to retain the shares or equity interests for a minimum period of two years;
An individual commitment, undertaken by each heir or beneficiary, to retain the transferred shares or equity interests for a period of four years from the expiration date of the collective commitment.
What Are the Conditions of the Collective Commitment?
The collective commitment to retain the shares is entered into by the transferor (the deceased or the donor), on behalf of themselves and their gratuitous successors, together with at least one other shareholder. It must meet the following requirements:
It must be entered into for a minimum period of two years and must be in force on the date of the transfer;
Throughout its duration, it must cover at least 10% of the financial rights and 20% of the voting rights attached to the shares issued by the company where they are admitted to trading on a regulated market, or otherwise, at least 17% of the financial rights and 34% of the voting rights, including the transferred shares;
It must be formalised by a written agreement (either a notarised deed or a private agreement) and duly registered, the registration date marking the starting point of the minimum two-year period. This period may subsequently be expressly or tacitly extended;
One of the shareholders party to the collective commitment, or one of the transferor’s heirs or beneficiaries, must effectively perform a management function within the relevant company.
By way of exception, the collective commitment may be entered into by the transferor alone, on behalf of themselves and their heirs and beneficiaries. In such case, the sole signatory is responsible for ensuring compliance with all the conditions of the Dutreil scheme, in particular those relating to the minimum holding thresholds and the exercise of a management function.
The law also provides for situations in which the shares form part of the matrimonial community between spouses or where ownership of the shares is divided (démembrement de propriété). In certain cases, the collective commitment may also be entered into by a legal entity, subject to specific conditions.
What Are the Conditions of the Individual Commitment?
In addition to the collective commitment, each of the transferor’s heirs or beneficiaries must enter into an individual commitment to retain the transferred shares or equity interests for a period of four years, starting from the expiry date of the collective commitment.
This individual commitment is entered into by the heirs or beneficiaries on behalf of themselves and their heirs and beneficiaries. It must be expressly set out in the inheritance tax return or in the deed of gift, as applicable.
What Are the Requirements Relating to the Exercise of a Professional Activity or Management Functions within the Transferred Company?
The Dutreil Scheme is intended to facilitate the transfer of small and medium-sized enterprises from one generation of operators to the next. In line with this objective, the application of the regime is subject to the effective exercise of a professional activity or management functions within the company by the transferor and/or their successors.
Indeed, the law requires that one of the shareholders party to the collective commitment, or one of the heirs or beneficiaries, carry on their main professional activity or exercise a management function within the company whose shares are transferred. This requirement must be satisfied throughout the duration of the collective commitment and for a further period of three years following the date of the transfer.
Please note that:
The professional activity or management function is not required to be exercised by the same individual throughout the entire retention period;
Where a change in management results in a vacancy not exceeding three months, the continuity requirement is deemed to be satisfied.
In the Event of a Transfer by Inheritance, is it Possible to Benefit from the Dutreil Scheme if No Collective Commitment Was Entered into Prior to Decease?
Yes. Where the shares or equity interests transferred upon death were not subject to a prior collective commitment to retain the shares, one or more heirs or beneficiaries may, among themselves or together with other shareholders, enter into a collective commitment to retain the shares. Such commitment must be entered into within six months following the transfer by inheritance (post-mortem commitment).
In the Absence of a Written Agreement, Can the Collective Commitment Result from the Effective Holding of the Shares?
Yes. The collective commitment to retain the shares is deemed to be satisfied where the shares or equity interests have been held for at least two years, directly or indirectly, by a transferor alone or together with their spouse, civil partner or recognised cohabiting partner (concubin notoire), provided that the applicable minimum holding thresholds referred to above are met.
This option is subject to the additional condition that the transferor, or their spouse, civil partner or cohabiting partner, has carried on their principal professional activity or exercised a management function within the relevant company for at least two years.
Eligibility Conditions for the Dutreil Scheme in the Transfer of Sole Proprietorships
The eligibility conditions are broadly similar to those applicable to the transfer of shares or equity interests in companies, with certain adaptations:
The transfer must relate to all or an undivided share (quote-part indivise) of the assets—movable or immovable, tangible or intangible—used in the operation of the business;
The sole proprietorship must have been owned for more than two years by the deceased or donor if it was acquired for consideration; no minimum holding period applies in the case of a gratuitous acquisition or business creation;
Each heir or beneficiary must undertake, in the inheritance tax return or the deed of gift, on behalf of themselves and their heirs and beneficiaries, to retain all assets used in the business for a period of four years from the date of the transfer;
At least one of the heirs or beneficiaries must continue to actively operate the business for the three years following the date of the transfer.
While many companies with a financial year ending on December 31 completed their annual accounts approval process in June, a ruling handed down earlier this year by the French Cour de cassation1 clarified the conditions under which criminal sanctions may be imposed on company direcctors who failed to submit the accounts on time.
According to the Court, a mere delay in presenting the annual accounts to the shareholders is not sufficient to constitute the offense of failure to submit, punishable by a fine of €9,000 under Article L.241-5 of the French Commercial Code. This interpretation opens the door to a possible regularization.
Mere Delay in Submitting Annual Accounts to Shareholders Does Not Constitute a Criminal Offense
In the case at hand, the general manager of a French private limited company (SARL) was accused of failing to submit the company’s annual accounts to the shareholders for the financial years 2012 through 2017. He was convicted on appeal, the court holding that the offense was constituted by the fact that the six-month period following the end of each financial year had been exceeded.
The French Cour de cassation overturned the appeal decision on the basis of Article L.241-5 of the French Commercial Code. The Court noted that the Law of March 22, 2012, had repealed the six-month deadline that previously applied to general managers under this article, for submitting the accounts to the shareholders’ meeting. As a result, it held that a mere delay in presenting the financial statements to the shareholders of a SARL is not sufficient to constitute a criminal offense.
This ruling provides a useful clarification. Following the repeal of the six-month deadline in relation to the criminal provisions, the conditions for establishing the offense under Article L.241-5 of the Commercial Code had remained unclear until now.
The Court now affords company managers a significant margin of discretion: only complete a failure to present the accounts or other documents to the shareholders’ meeting—not a mere delay—may constitute a criminal offense under this provision.
This decision has notable practical implications, as it requires that the offense be assessed at the time the judge rules on the case—and only if the accounts have still not been submitted to the shareholders by that date. Therefore, it leaves room for a possible regularization of the situation until the very last moment, which appears to limit the effectiveness of the criminal sanction provided for in Article L.241-5 of the French Commercial Code, whose application is already rare.
Finally, it is worth noting that this judicial solution could be extended to public limited companies (SA), as the criminal offence of failing to submit accounts—under Article L.242-10 of the French Commercial Code—is defined in almost identical terms. It may even apply to simplified joint-stock companies (SAS), through a possible extension of the rules applicable to SAs.
Key Obligations of Commercial Companies for the Approval of Annual Accounts
Beyond the criminal sanction provided for under Article L.241-5 of the French Commercial Code, commercial companies are subject to various obligations regarding the approval of annual accounts by shareholders and the subsequent filing with the registry. Any failure to comply may give rise to injunctions by the president of the competent commercial court, possibly with a penalty (astreinte). The management may also be held liable if such failure causes damages to the company or its shareholders.
Presentation of the annual accounts to the shareholders for their approval
Pursuant to Articles L.223-26 (for SARLs) and L.225-100 (for SAs) of the French Commercial Code, the management report and annual accounts, among other documents, must be submitted by the general manager, the board of directors or the executive board (as applicable) to the shareholders for approval at a general meeting to be held within six months following the end of the financial year. Failing that, an extension must be requested to the commercial court.
With respect to SASs having multiple shareholders, Article L.227-9 provides that the annual accounts must be approved by the shareholders. The approval process, including the timeline, is freely determined by the company’s bylaws. However, this freedom is limited by Article L.232-13, which requires that if dividends are to be distributed, payment must occur within nine months after the financial year’s end, unless an extension is granted by judicial decision. In the absence of any provision in the bylaws regarding the approval deadline, the National Company of Auditors (Compagnie Nationale des Commissaires aux Comptes – CNCC) recommends consulting the shareholders within six months following the end of the financial year.2
Regarding SASs with a sole shareholder, the sole shareholder must approve the accounts within six months following the end of the financial year pursuant to Article L.227-9, paragraph 3.
In case of default, the shareholders or the State Attorney (Ministère Public) may request the president of the commercial court to order the competent corporate body, under penalty, to convene the meeting required for approving the accounts or to appoint a representative for this purpose.
Filing formalities
Finally, pursuant to Articles L.232-22 (for SARLs) and L.232-23 (for SAs and SASs) of the French Commercial Code, the company’s annual accounts, the management report, the statutory auditors’ report (where applicable), and the decision on the allocation of financial results must be filed with the registry of the commercial court within one month following their approval.
The president of the commercial court may, at the request of any interested party or the State Attorney (Article L.123-5-1), or on their own initiative (Article L.611-2), order that the filing be carried out, under penalty. Failure to comply may also result in criminal sanctions.
