The situation
This departure had to be coordinated with the continuation of his duties, possible future transactions on his shares and his wealth and family objectives.
The client wished to know whether his departure would trigger immediate taxation and to anticipate the tax consequences of a future sale or reorganisation of his shareholdings.
Our support
- 01
Securing the change of tax residence
We analysed the client’s personal, family, professional and economic ties with France and with his future State of residence.
Our work covered, in particular:
- the location of the family home;
- the time spent in each country;
- the continuation of a professional activity or a corporate office in France;
- the location of the main assets and sources of income;
- the application of the relevant tax treaty;
- the steps to ensure consistency between the contemplated departure and the client’s actual situation.
We then drew up a roadmap covering the periods before and after the departure.
Point of attention. The transfer of tax residence does not depend on the move alone. The taxpayer’s family, professional and economic situation must be assessed as a whole. - 02
Determining the exposure to exit tax
We examined the client’s shareholdings in order to identify those within the scope of the exit tax provided by article 167 bis of the CGI.
The analysis covered:
- shares held directly;
- shareholdings held through a holding company;
- the different classes of shares;
- earn-out receivables;
- capital gains already placed under a tax deferral;
- the value and percentage of the shareholdings.
Exit tax may apply, in particular, to unrealised capital gains where the taxpayer has been a French tax resident for at least six of the ten years preceding departure and their shareholdings reach the thresholds set by law. The value threshold currently provided by article 167 bis is set at €800,000.
Simplified example: shares acquired for €1 million and valued at €4 million on the day of departure show an unrealised capital gain of €3 million, even though no sale has yet taken place. - 03
Valuing the shareholdings concerned
We coordinated the valuation of the shares as at the contemplated date of the transfer of residence.
This analysis took into account, in particular:
- the acquisition history of the shares;
- earlier contributions, exchanges or restructurings;
- the rights attached to each class of shares;
- the assets and liabilities of the holding company;
- recent transactions in comparable securities;
- any earn-outs;
- existing tax deferrals and roll-overs.
The unrealised capital gain is, in principle, determined by the difference between the value of the shares on the day of departure and their acquisition price or value.
Point of attention. The valuation on the day of departure is a central element in calculating the exit tax. It must be consistent with the rights attached to the shares, the financial data and the available market references. - 04
Determining the payment terms
We then checked whether the client could benefit from a payment deferral.
The applicable terms depend, in particular, on the State the taxpayer is moving to. In some situations, the tax is calculated and reported on departure, but its payment is deferred. In others, a specific request, the appointment of a representative and the provision of guarantees may be necessary.
Point of attention. The payment deferral does not make the exit tax disappear. The shares concerned, later transactions and reporting obligations must continue to be monitored. - 05
Anticipating future transactions
We analysed the consequences of transactions likely to occur after departure:
- sale of the shares;
- contribution to a new holding company;
- restructuring of the ownership chain;
- buy-back, redemption or cancellation of the shares;
- gift to family members;
- liquidation of a company;
- a later return to France.
A sale, buy-back, redemption or cancellation of the shares may, in particular, end the payment deferral. Particular care is also needed where the shares already carry a deferred capital gain or are the subject of a reorganisation after departure.
Finally, we examined the risks of double taxation that may arise where the sale is taxed both in France under the exit tax and in the new State of residence.
Point of attention. The timing of transactions is decisive: selling, contributing or transmitting shares before or after the change of residence can have different tax consequences. - 06
Ensuring reporting follow-up after departure
Finally, we prepared the returns linked to the departure and put in place a follow-up of the shareholdings concerned.
This follow-up covered, in particular:
- the shares within the scope of the exit tax;
- their value on the day of departure and their acquisition price;
- existing tax deferrals;
- later sales, gifts or restructurings;
- the continuation or expiry of the payment deferral;
- the supporting documents to keep;
- situations likely to give rise to a relief or a refund.
Point of attention. Failure to comply with the reporting obligations may, in particular, end the payment deferral.
The result
The entrepreneur was able to organise his departure with a clear view of the tax consequences attached to his shareholdings.
The exit-tax exposure was identified and valued, the payment terms were secured and future transactions were built into a post-departure monitoring plan.
The change of residence was thus coordinated with the client’s professional, wealth and family objectives, rather than treated as a mere reporting event.
This case was handled by the firm, in light of the law and case law in force at the time of the engagement, and in the light of circumstances specific to it. It is presented for illustration purposes only: it does not constitute advice and does not predetermine the treatment that might be adopted in another matter.