Pacte Dutreil and sole proprietorship: goods not necessary for the activity are excluded


In a judgment of 9 February 2022, the Court of Cassation recalls an element of the operation of the pact Dutreil to individual companies. Tax authorities can always prove that the assets shown on the balance sheet are not necessary for the company’s activity. In this case, the amount of money transferred must not exceed normal cash requirements.

Better known to corporations than individual companies, the pact Dutreil allows exempting up to 75% of the value of the individual property transferred free of charge, by donation or following death, from the registration fee. The transfer covers all movable or immovable property, tangible or intangible, allocated to the operation of a company in an individual name. It can also refer to the whole or an undivided part of the property. Finally, in the case of donation, it can refer exclusively to the usufruct or the simple ownership of the company (CGI, art. 787 C).

A recent judgment by the Court of Cassation recalls that the recording of assets on the company’s balance sheet makes them presumably necessary for the company’s activity. However, tax authorities can always provide evidence to the contrary (, Feb 9, 2022, #20-10753).

Agriculture as a sole proprietorship

In this case, Mr. B., farmer, leaving his nephew and niece, Mr. and Mrs. T., who requested the benefit of article 787 C of the CGI. This text provides for individual companies eligible for the Dutreil regime (with industrial, commercial, artisanal, agricultural or liberal activity) a partial exemption of 75% of the transmission rights free of charge, on the whole or undivided part of all movables or real estate, tangible or intangible assets attributed to the transaction.

To qualify, the individual property must have been owned by the deceased or the donor for more than two years when it was acquired for consideration. In addition, each heir, donee or legatee must undertake in the declaration of succession or in the deed of donation, for him and his assignees free of charge, to keep all assets destined for the operation of the company for a period of four years from the date of transfer. Finally, one of them must continue to operate the business for three years following the transfer date. In this case, the legatees undertook to keep, for a period of four years, all the assets assigned to the deceased’s farm. And one of them, his nephew, committed to continue the activity for three years. The transaction was valued in the inheritance statement at €920,265.59 (€182,700 of operating equipment, €451,000 of built and unbuilt properties, €286,565.59 of current assets on the balance sheet).

Reintegration of property in the field of inheritance tax

The legatees benefited from a total exemption of €690,199.17, but the tax administration refused the benefit of the exemption for certain assets as they do not constitute assets necessary for the exercise of the profession: three properties (€160,070), negotiable securities (€90,121.52 ) and amounts from the estate of Ms. B., who died a few months before her husband (€115,192.79). Thus, the tax administration reassesses the value of the exempt assets by 554,881.28 euros and claims the excess of inheritance tax (84,692 euros of tax and 9,486 euros of late payment interest).

The legatees contested this proposed rectification. Regarding the buildings, they claimed that one houses live cattle as well as the almost permanent accommodation of the farm manager and that the other two are used for the storage of equipment and fodder. Regarding the securities, they indicated that they correspond to the current assets of the balance sheet of the cessation of activity and that they were allocated to the assets of the professional activity in order to ensure their functioning. The tax authority heard the arguments of the premises, but maintained the correction for real estate funds and investment bonds. The legatees contested this decision, considering that the administration did not prove that it was not necessary to exploit the amounts resulting from the inheritance of Ms. B. and the life insurance contribution collected on the occasion of her death.

A simple presumption of utility

The TGI Tarbes (TGI Tarbes, September 13, 2016, nº 16/00022) and the Court of Appeal of Pau (CA Pau, November 19, 2019, nº 16/03456) confirmed the fiscal position of the administration, judging this evidence of the necessary nature of the goods for the operation was not provided by the legatees.

The Court of Appeal recalled that, according to the jurisprudence of the Court of Cassation, in the case of an individual company, the entry in the balance sheet presupposes a professional nature, and that the administration can combat this presumption by demonstrating that this asset is not really necessary for the operation. “Thus, cash and similar financial investments are considered professional assets, when recorded on the company’s balance sheet, provided that their value does not exceed the company’s normal cash needs.”

The Court of Cassation recalls that if the entry of movable and immovable property, tangible or intangible (in the case of cash) on the balance sheet leads to the presumption that they are used for the operation of the company, the administration has the option of proving that they are not necessarily and actually attributed to him.

In this case, the Court of Appeal argued that the amounts in dispute, arising from his wife’s estate, were deposited by Mr. in a personal account and that there is no evidence that the 86-year-old had any changes in the management of the company at that time; that the disputed amounts were only mentioned in the assets of the company’s balance sheet after the death of Mr. B, as well as marketable securities, which are not included in the balance sheet for the year ended December 31, 2010. After evaluating the company’s average cash flow needs over the last three full years, it had liquidity well in excess of its current operating expenses . Furthermore, if the legatees prove that, after the death of Mr. B, invested in equipment and works, the company’s liquidity, excluding the amounts in dispute, was sufficient to finance these investments. Finally, the Court of Appeal found that the legatees had not provided any evidence to the contrary capable of allowing them to benefit from the exemption provided for in Article 787 C of the CGI and the Court of Cassation recalled that the Court of Appeal was not obliged to explain the evidence you chose to ignore.

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