Merger tax neutrality regime (art. 210 A CGI)

The merger tax neutrality regime, set out in article 210 A of the French General Tax Code, allows a merger, a demerger or a Partial asset contribution (France) to be carried out without the transaction triggering immediate taxation of the absorbed company's unrealised capital gains. Without this regime, a Merger would be treated for tax as a cessation of business, with taxation of all deferred gains and profits, which would make most restructurings prohibitive.

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The principle is one of tax neutrality by deferral: the absorbing company takes over the absorbed company's tax values and undertakes to ensure their continuity, notably by later reintegrating gains on depreciable assets and keeping provisions still justified. Taxation is therefore not cancelled but deferred until the assets concerned are actually realised.

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By way of illustration, an absorbed company carries 3 MCHF of unrealised gains on its assets. Without the article 210 A regime, these 3 MCHF would be taxed immediately; under the neutrality regime, taxation is deferred, the absorbing company taking over the tax values and gradually reintegrating gains on depreciable assets.

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Benefiting from the regime requires meeting precise undertakings written into the merger agreement. Its interplay with the fate of tax losses and Tax consolidation makes tax a decisive strand of any restructuring, to be secured from the design of the transaction under rigorous mergers and acquisitions advisory.