Towards an extension of the exemption base regarding wealth tax for professional assets

November 13th 2015

Sometimes companies which, albeit eligible for the exemption from wealth tax as a result of carrying out an operational activity or as an active holding company, hold assets referred to as “patrimonial”, i.e. which are not by any means related to said operational activity.

It may concern rental properties, certain cash flow investments in excess of the business requirements…

Yet, the legislator has set as a principle that only the fraction of the value of the shares corresponding to the assets necessary for the operational activity benefit from the exemption, so that the fraction of the value of the shares which corresponds to patrimonial assets must be subject to wealth tax.

Nonetheless, the Cour de cassation (Cass. Com. October 20, 2015, no.14-19598) has given some useful perspectives to this principle by indicating that it was to be construed narrowly and that it could not subject to wealth tax, assets held by the company’s subsidiaries which constitute the taxpayer’s professional asset.

Therefore, whilst certain subsidiaries hold “patrimonial” assets, the value of the shares of these subsidiaries included in the value of the company constituting the professional asset shall be retained for their total value for the purpose of the exemption.

Whilst this decision is very significant for past situations, it appears to be difficult to construct organisations on this basis, so it is worth bearing in mind that the text should be subject to developments to counter the effects.

Julien Charnay-Rousset