com November 26 2003 Instruction 0x00104 7 S 5August 3 2004

What say the rules They focus on a few principles:

Current accounts of Associates, first of all, are not considered in principle as professional property; they are to include in the taxable base. This position has been confirmed on several occasions (including Rep.) Meyer; YEAR September 23, 2002; Rep. (JL Christ, AN April 4, 2006). It may seem curious that in a large number of companies, particularly SMEs, the blocked account is a required for the financing of the company.

Note however that in the case of accounts registered to the assets of the balance of an individual enterprise and assigned to the operation of a business, they may be exempt professional property of EWB (Cass. com, may 6, 2008).

With respect to shares in companies:

are not considered professional goods shares or shares in companies whose main activity management of their own heritage furniture or real estate (article 885-O c of the general tax CGI Code);

only has the qualification of professional property fraction value of the shares or shares corresponding to the social heritage elements necessary for the activity industrial, commercial, artisanal, agricultural or liberal society (article 885-O ter of the CGI). If this rule is simple to understand for some goods (case of the building not assigned to the operation), it is more difficult to understand when it comes, for example, cash and financial investments registered in the balance sheet of a company. Although they are suspected be exempt professional property, administration can question the exemption if it manages to demonstrate that such cash or investments are out of proportion to the activity, cash flow or working capital needs for social activity (Cass. com, July 10, 1989, Cass. com, February 8, 2005;) Cass. (com, March 26, 2008).

Finally, a taxpayer may have exceptions, as a professional tool in the eyes of the legislature (principle of uniqueness of the property professional).

Then be distinguished according to whether shares or actions relate to companies subject to corporate tax or not:

For the partnerships under the income tax (SNC, civil societies, simple in limited partnerships, participation, SARL companies opted for the partnership plan, EURL... as referred to in articles 8 and 8 of the CGI), the shares of these companies enjoy the qualification of professional property when their owner carries on its business effectively and main title.

With regard to the share or shares of companies subject to the tax on companies (of full right or on option), three conditions must be met simultaneously so that the owner can argue their character of exempt professional property of EWB:

should exercise executive functions "qualified" in society;

it must receive a "normal" compensation for its executive functions;

it must have more than 25, directly or indirectly, the capital of the company, except that such participation represents more than 50 of his total taxable gross assets to Lai.

With regard to the functions "qualified", they are defined strictly by article 885-O bis (1):

managing right of SARL or SCA, associate on behalf of a company person, President, CEO, Chairman of the Supervisory Board, Member of the Board or Directors General delegates to a joint stock company;

in simplified corporations (SAS), can benefit from this characterization the partners hold functions which, in accordance with the statutes of the SAS, is at least equivalent to those which are exercised in the SA by the persons mentioned in article 885-O 1o 1a (see supra). In relation to the Directors General and Directors General delegates, the appreciation of the "equivalent" nature of their duties assumes that they are well invested a power of representation of the company enforceable against third parties (delegations registered with the register of trade and companies (see Rep.)) Luart; (Senate July 17, 2003).

A noted that interested parties must have been "regularly appointed" to one of the above direction functions (Cass. com, November 26, 2003;) (Instruction 0x001-04 7 S - 5-August 3, 2004).

With regard to compensation, it must first be normal in functions (Cass. com, May 15, 2007). This remuneration shall, moreover, represent more than 50 of the income of the taxpayer that is, in most cases, the income subject to income tax in the category of salaries, wages and related workers; the compensation to take into account is, exceptions, that received the year before January 1 of the reference year (Cass., April 7, 2009). The administration admits to not question the benefit of the exemption because the only level of remuneration, in the particular case of a new business or an undertaking in difficulty, for two years. The administration admits to take also into account, when the person liable is in addition to his directing function another activity (for example in respect of an employment contract), the remuneration of the last activity. Finally, it was stated that, in some situations justified on economic grounds, dividends may be retained to apprehend the normal compensation nature, once they offset the weakness of the latter.

Finally, the 25 threshold is determined taking into account the interests held by the family, namely group, beyond the leader, his spouse or well known partner, their ascendants, descendants and their brothers and sisters.

Derogations could be made to the requirement cumulative of these three conditions, either by the Act (the managers and partners referred to in article 62 of the CGI are exempted from the threshold for participation, for example), or more administrative doctrine (for the liberal professions exercised in SA or SARL, for example).

There where things get complicated, it is in the assumption of a group company or holdings in companies.

With regard to the groups of society, Parliament and administrative doctrine brought some measures of temperament by providing, under certain conditions:

taking account of indirect entries for the assessment of the threshold of detention but, within the limits of a single degree of interposition.

exemption of a fraction of the value of the securities in interposed society;

and finally the exemption of the holdings through a "facilitator" holding company

In substance, be sure to define "good" structure where the "good" functions will be performed and where pay will be housed.

Finally, it is recognized that the rights held in several companies can form a good professional unique and that the condition relating to the importance of compensation can be assessed globally at the level of the Group of companies, when:

each participation taken alone satisfies the other conditions (threshold of 25 and qualified functions);

the companies in question were either similar or related and complementary activities (Cass. com, March 11, 2008). Generally, the notion of similar activity raises no particular difficulty. The concept of related and complementary activity is often more difficult to apprehend. The linkage involves dependency links and complementarity assumes that the activity of one of the companies enrols in the extension, upstream or downstream of the other (for example, manufacturing and sales).

If power benefit from the exemption in respect of the professional property, remember that there are other devices of exemption for the securities of companies.