The principle:
This arrangement allows a business owner to contribute securities to a holding company that he controls, and then have that holding company sell the securities. The capital gain on the contribution is then subject to mandatory tax deferral—not a permanent exemption—as long as the legal requirements are met.
The main advantage:
This is the tax deferral leverage effect: instead of immediately paying a flat tax of ~30% on the capital gain at the time of sale, the executive reinvests 100% of the proceeds from the sale through the holding company, thereby deferring the tax. So, in effect, the tax authorities’ tax “works to your advantage” for the entire duration of the deferral…
This is not an exemption. The tax remains due; it is simply deferred. The capital gain will “carry over” until a triggering event occurs (sale of the holding company’s securities, transfer of ownership, etc.). Certain estate planning strategies, however, make it possible to extend this deferral very significantly, or even to pass it on as part of an estate—but this is where anti-abuse scrutiny intensifies.
Key figures to keep in mind:
Applicable flat tax: 30% PFU (income tax 12.8% + social security contribution 17.2%)
High-Income Surcharge: 3–4% CEHR (Art. 223 sexies of the General Tax Code)
Reinvestment quota (≤ 3 years): 70% since the 2026 Budget Act (was 60%)
Reinvestment period: 3 years under the 2026 Budget Act (previously 2 years)
Eligibility requirements:
The Profitable Holding Company
- Subject to corporate income tax (France or the EU)
- Controlled by the contributor, who holds more than 50% of the voting rights or financial interests
- Control is assessed as of the date of the contribution, based on the ultimate ownership of the shares
- Presumption of control if ≥ 33.33% with no third party holding a larger stake
The contribution itself
- Contribution of securities (stocks, shares, including listed ones)
- In exchange for shares in the holding company (no excessive cash adjustment)
- Applies to contributions made on or after November 14, 2012
- Automatic extension — no prior request required
Two possible scenarios following the sale of the contributed securities:
Sale after 3 years:
The carryover is automatically maintained, with no requirement to reinvest. It will continue until an event occurs that terminates it (transfer, dissolution, subsequent sale of the holding company’s securities, etc.).
Sale within 3 years:
The continuation of the deferral is contingent upon at least 70% of the proceeds from the sale being reinvested in eligible economic activities within three years.
Eligible reinvestments (LF 2026):
✓ Eligible
- Investment in the capital of operating companies (industrial, commercial, craft, agricultural, and professional services)
- Direct investments in eligible activities
- FCPR, FPCI, SCR, and SLP funds with at least 75% of their assets invested in eligible companies (50% in certain cases under the Dutreil Pact)
- Hotels and Managed Residential Properties (excluding NAF Section L)
- Retention of acquired assets/securities: at least 5 years (LF 2026)
✗ Excluded (LF 2026)
- Managing One’s Own Personal Property
- Real estate activities as defined in Section L of the NAF classification (development, construction, leasing, etc.)
- Investments made purely for wealth preservation (SCPI, traditional SCI, etc.)
- Real Estate Investment Activities (subject to upcoming BOFiP comments)
Events that end the deferral:
— Sale, repurchase, redemption, or cancellation of the holding company’s securities received in exchange
— Sale of securities contributed by the holding company without sufficient reinvestment (Scenario B)
— Failure to meet the quota or the reinvestment deadline
— Transfer of tax residence outside France (exit tax)
— Donation of holding company securities (except where retention is permitted under certain conditions)
— Dissolution or liquidation of the holding company
⚠ Change to the 2026 Budget Law — retroactive application:
The new rules (70% quota, 3-year holding period, real estate exclusion, 5-year retention period) apply to dispositions of contributed securities made on or after the day following the publication of the 2026 Finance Act (February 2026). Previous sales remain subject to the old rules: 60% threshold, 2-year period, 1-year holding period. Details regarding certain categories (property investors in real estate funds, managed residential properties) are pending comments from the BOFiP…
Consequences of noncompliance:
The deferral is being completely and retroactively revoked: the entire capital gain on the contribution becomes taxable for the year in which the deferral period expires, at the flat tax rate (30%) plus the CEHR, if applicable. The law does not provide for any partial deferral—the threshold is binary. Late payment interest (0.20% per month) may apply.
Recent Case Law Considerations:
- Start of the time limit: The reinvestment period begins on the date the holding company is registered with the RCS (Montpellier Administrative Court, Oct. 6, 2025). Any reinvestment made before that date or after the expiration of the time limit is unenforceable.
- Mandatory timeline: The Lyon Administrative Court of Appeal ruled that reinvestment is not permitted until the contributed securities have been sold.
- Cash Settlement and Abuse of Rights: The fact that a cash settlement is made in connection with an inheritance is not sufficient to rule out an abuse of tax law (Fiscalonline, Feb. 2026). The cash settlement must remain less than 10% of the face value of the securities received.
- Eligibility of target companies: The target company’s economic activity must be genuine and active. Schemes dominated by passive real estate investments were excluded as early as 2024–2025.
Here are a few important points to keep in mind:
Changes introduced by the 2026 Organic Law (published in February 2026, adopted under Article 49-3):
The reinvestment quota in the event of a sale within 3 years increases from 60% to 70%; the reinvestment period extends from 2 to 3 years; the minimum holding period for acquired assets increases to 5 years (up from 1 year previously), and real estate activities (NAF Section L) are now explicitly excluded from eligible reinvestments.
What remains unchanged: the principle of mandatory carryover, the three-year rule for disposal without a reinvestment requirement, and the all-or-nothing nature of the system.
Note: The BOFiP’s comments on the exact scope of real estate investment funds and managed residential properties have not yet been published. Any transaction in these sectors requires a thorough preliminary analysis.
Always (and especially BEFORE…) consult your tax attorney…
Richard BELLANGER – LUXURY PROPERTIES – www.luxuryproperties.fr
