Tax consolidation

Tax consolidation (intégration fiscale) is a French group tax regime (Articles 223 A et seq. of the General Tax Code) allowing a parent company holding at least 95% of each French subsidiary to file a single consolidated tax return and become solely liable for the group's income tax, subsidiaries being treated as if they had no independent tax liability. Profits and losses within the group are offset and intragroup transactions are neutralised: dividends between consolidated entities receive a 99% exemption, versus 95% under the parent-subsidiary regime. In LBO structuring, tax consolidation is a key mechanism enabling deductibility of acquisition debt interest at group operational level, through fiscal integration of the acquisition holding (NewCo) with the target.

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The main advantage is immediate loss utilisation: rather than being carried forward at subsidiary level, losses are offset against the group's current-year profits, immediately reducing the cash tax burden, which is particularly valuable in growth or restructuring phases. In financial due diligence, an existing tax consolidation group significantly affects the target's normalised tax charge, which may differ substantially from what a standalone entity would pay and requires restatement; in a business valuation, the group's tax base must be modelled at consolidated level, not entity by entity.

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Example: in a French LBO, the NewCo acquirer fiscally integrates its French subsidiaries from year one. Annual acquisition debt interest of CHF 800,000, non-deductible at NewCo level alone (insufficient profit), becomes deductible within the integrated tax group, generating a CHF 200,000 annual tax saving (25% French corporate tax rate) that directly improves debt repayment capacity.

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Hectelion integrates French tax consolidation mechanics into LBO structuring mandates and models its impacts in due diligences and group valuations, optimising acquisition interest deductibility and group tax efficiency.