Recent Developments
PARLIB01/ZZZPARP/1030762.3 Hogan Lovells French Legal and Regulatory Update – May 2016 The Paris office of Hogan Lovells is pleased to provide this English language edition of our monthly e-newsletter, which offers a legal and regulatory update covering France and Europe for May 2016. Please note that French legal concepts are translated into English for information only and not as legal advice. The concepts expressed in English may not exactly reflect or correspond to similar concepts existing under the laws of the jurisdictions of the readers.
There is no equivalent to the English law concept of trust under French law. This means that where a syndicated loan is to be secured by French obligors, security interests must generally be granted independently to each member of the syndicate (there will be a list of pledgees contained in the security document). Any change to that group of lenders would generally entail the transfer of the French law security to each new lender.
Article 37 of the Act on Continuity of Enterprises states that "claims against the debtor related to services provided by its co-contractor during a judicial reorganization are to be qualified as privileged claims in a subsequent bankruptcy". Both the doctrine and case law are divided as to how this article should be interpreted, in particular whether or not only a direct co-contractor of the debtor can invoke the privileged nature of its claim. This discussion is particularly relevant with regard to claims for advance business tax, VAT claims and other tax debts.
Le projet de loi relatif à la lutte contre la fraude fiscale et la grande délinquance économique et financière vient d’être adopté par l’Assemblée nationale le 5 novembre 2013. Ce texte prévoit notamment, dans son article 29, un allongement du délai d’opposition des créanciers aux opérations de dissolution sans liquidation des sociétés unipersonnelles pour le porter de 30 à 60 jours
Amendments to the rules of deductibility of interest expenses
Further restrictions to deductibility of interest expenses incurred in relation to a share purchase1
Since the adoption of the 2011 Finance Act, the scope of application for thin capitalization rules, provided for in article 212 of the French Tax Code, was extended to all loans, including bank loans, backed by security interest or a guarantee, granted by a company belonging to the borrower's group or by a company with a guaranteed undertaking secured by a company related to the borrower.
Tax treatment in the hands of the creditor
The tax treatment of the forgiveness of debt within a group of companies depends on whether or not such forgiveness is of a “normal nature”. In order to be considered as being of a normal nature, the ‘advantage’ granted by a parent/creditor to its subsidiary/debtor must involve valid business reasons.
Summary
This briefing sets out the key French corporate income tax issues in respect of debt restructurings. In summary, debtors and creditors may be faced with material tax consequences in case of a debt waiver, debt transfer, conversion of debt into equity or debt buy-back, so that such operations may require an appropriate structuring in order to mitigate potential tax issues.
Introduction
This briefing summarises key French tax points relating to restructuring of indebtedness.
On 27 March 2020, the law for the Mitigation of the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings Law was announced in the Federal Law Gazette (BGBl. I 2020, page 569). Among other things, the retroaction under commercial law in case of restructuring measures for the year 2020 was extended from eight to twelve months, although adaptations in the Reorganisation Tax Act (UmwStG) were not made in this context. This may result in complications.