The Dutreil Scheme (Pacte Dutreil) is a tax incentive designed to facilitate the intergenerational transfer of family-owned businesses in France. Where the relevant conditions are met, the transfer of a business by way of gift or inheritance benefits from a 75% exemption from transfer taxes (droits de mutation à titre gratuit) calculated on the value of the transferred shares or the transferred business. This article provides an overview of the main eligibility requirements and frequently asked questions.
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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The partial exemption from transfer taxes provided for under the Dutreil Scheme applies both to the transfer of shares or equity interests in companies (Article 787 B of the French General Tax Code) and to the transfer of sole proprietorships (Article 787 C of the French General Tax Code).
The transfer may occur either upon the decease of the original owner (inheritance) or by way of a lifetime gift.
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.
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.
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:
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:
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.
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.
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:
For further details regarding these requirements, reference may be made to BOI-ENR-DMTG-10-20-40-10, paragraphs 280 and 290.
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).
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.
The eligibility conditions are broadly similar to those applicable to the transfer of shares or equity interests in companies, with certain adaptations:
