Charasse amendment (art. 223 B CGI)

The Charasse amendment is a French tax mechanism, codified in article 223 B of the General Tax Code, that limits the deduction of financial charges within a Tax consolidation group where a company buys a target from its own controlling shareholders, then integrates it into the same perimeter. It targets so-called buy-from-yourself situations, in which the tax leverage of the structure would mainly serve to fund a transaction between related parties.

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Concretely, the mechanism leads to adding back to the group's overall result a portion of the group's financial charges, calculated on a flat-rate basis, over several years following the acquisition. The legislator's aim is to prevent the interest deductibility of an Leveraged Buy-Out (LBO) from being diverted to optimise a sale between existing shareholders, without genuine economic substance.

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For example, an owner sells his company for 20 MCHF to a holding he controls, funded with 12 MCHF of debt, then tax-consolidates the whole. The Charasse amendment leads to adding back each year a flat-rate portion of the group's financial charges over the period concerned, reducing the tax saving expected from the leverage.

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The Charasse amendment is one of the major points of vigilance in structuring a leveraged acquisition involving sellers who keep control. Anticipating it is a matter of careful financial structuring, often secured in advance, so as not to overstate the tax saving expected from leverage.