Pacte Dutreil, Donation and Business Transfer: How to Transfer Your Company in France in 2026

Introduction: valuation, the blind spot of the Pacte Dutreil

A 61-year-old business owner transfers his industrial SME to his two children via a Pacte Dutreil. The valuation retained by his accountant: €3.2m. The deed of gift is signed, the transfer taxes paid, the transfer complete. Two years later, the tax authorities open an audit. They retain a value of €6.8m. Result: transfer taxes multiplied by 4, plus penalties. The Pacte Dutreil does not protect against this risk — it amplifies it, because the administration audits with all the more rigour the higher the allowance granted.

The Pacte Dutreil (art. 787 B CGI) is the most powerful tax mechanism in French family business transfers: it allows an exemption of 75% of the taxable value on gifts or inheritances of business assets. But this exemption applies to a base — and it is this base, the value retained for the shares transferred, that entirely determines the real tax cost of the transaction.

According to EY, the Pacte Dutreil is used in 85% of family business transfers in France — and represented €5.5 billion in tax relief in 2024 (Cour des comptes, November 2025). The fiscal reforms of 2024-2026 have accelerated transfers among 55-65 year-old business owners, mechanically creating an increase in tax audits on the valuations retained.

The central issue: a poorly constructed valuation can multiply transfer taxes by 4 in the event of a tax reassessment. Conversely, an undervalued company exposes the donor to requalification as a disguised gift. The only point of equilibrium is the defensible median value — documented, credible and enforceable against the tax authorities.

This article presents the Dutreil mechanism in 2026, effective tax rates, the four accepted valuation methods, the “secured median value” method, a quantified case study, Franco-Swiss specificities, and Hectelion’s role.

Would you like to transfer your business, have it valued or structure a gift under a Pacte Dutreil?

Hectelion conducts all these engagements in France and Switzerland — independent valuation, financial due diligence, financial structuring, family business transfer.
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With or without a Pacte Dutreil: the difference in figures

Before entering into the detail of the mechanism, here is what the Dutreil allowance represents concretely for a €5m SME, two beneficiary children, donor aged 68.

Effective tax rates according to the donor’s age

The Pacte Dutreil combines two fiscal mechanisms whose articulation is directly linked to the donor’s age on the day of the gift. This is one of the most decisive parameters in the financial structuring of the transfer.

Before age 70 — full ownership gift: effective rate ~4.2%

The combination of the Dutreil 75% allowance (art. 787 B CGI) and the additional 50% reduction on residual taxes (art. 790 CGI) reduces the taxable base to 12.5% of the value transferred.

After the legal allowance of €100k per child, the effective tax rate according to the Cour des comptes amounts to approximately 4.2% for a €20m SME transferred to two children — against 42% without the mechanism.

For a €2.5m SME, this rate falls to 1.63% with Dutreil, against 25.01% without (Cour des comptes, November 2025).

After age 70 — without additional reduction: effective rate ~8-9%

Past the donor’s 70th birthday, the 50% reduction provided by article 790 CGI no longer applies — for full ownership gifts only. The Dutreil 75% allowance remains fully applicable. The effective rate then rises to approximately 8 to 9% of the value transferred. This is still considerably lower than the rate without Dutreil, but the gap with a pre-70 gift can represent several hundred thousand euros on a mid-market transfer.

In bare ownership (usufruct / bare ownership split): effective rate ~0.7%

The Dutreil + dismemberment combination achieves the lowest effective rates. The 50% reduction (art. 790 CGI) does not apply in dismemberment, but since the bare ownership value is lower than full ownership, the overall effective rate can fall to 0.7% of the total business value for well-structured anticipated transfers (Cour des comptes, November 2025).

The arbitrage between these three options is one of the central elements of the financial structuring of a Dutreil transfer. It must be modelled before any signing.

The Dutreil mechanism 2026 — structured overview

The Pacte Dutreil is a tax mechanism provided by article 787 B of the French General Tax Code. It allows an exemption of 75% of the taxable value for gifts and inheritances of shares in a company exercising an industrial, commercial, artisanal, agricultural or professional activity on a predominant basis.

The collective conservation undertaking: the donor and at least one other shareholder commit to holding their shares for at least 2 years, covering at least 17% of financial rights and 34% of voting rights. It can be “deemed acquired” if the conditions are met without a formal deed.

The individual conservation undertaking: each beneficiary commits to holding the shares received for 6 years — a period extended from 4 to 6 years by the 2026 Finance Act (art. 8, applicable since 21 February 2026). Total minimum commitment: 8 years.

The effective management condition: one of the signatories or beneficiaries must exercise effective management during the collective undertaking and for the 3 years following the transfer.

Cumulative with the legal allowance of €100k per child every 15 years, the 50% reduction before age 70 (art. 790 CGI), and deferred payment facilities (5 years deferred then spread over 10 years). LF 2026 change: luxury assets excluded from the eligible base — non-professional housing, yachts, jewellery, passenger vehicles, wines, artworks (exception: exclusive professional use since at least 3 years).

Why the retained valuation changes everything

The value retained in the deed of gift constitutes the calculation base for transfer taxes on the residual 25% after the allowance. The tax recovery period for transfer taxes is 6 years. A €1m gap on the business value represents, after the Dutreil allowance, approximately €250k of additional taxable base — i.e. €70k to €100k of additional taxes before penalties. This is why an independent valuation prior to any gift is the donor’s primary protection.

The 4 accepted valuation methods

The tax authorities expect a real market value — the value at which an independent buyer and seller would have concluded the transaction. Four methods are systematically retained and documented in reports successfully opposed to the administration. They are systematically cross-referenced by Hectelion to arrive at the secured median value. See our article on business valuation approaches and methods.

1. The comparable transactions method (EV/EBITDA)

This method values the target company by reference to EV/EBITDA multiples observed in recent transactions involving comparable companies — same sector, same size, same profitability profile. Reference databases used by Hectelion include the Argos Index® (at 8.3x EV/EBITDA in Q4 2025), Damodaran and sectoral databases Capital IQ and Mergermarket.

The first step is EBITDA normalisation: a multiple applied to an unnormalised EBITDA produces an indefensible valuation. See our article on normalised EBITDA. The second step is the application of adjustment discounts, presented in our article on valuation premiums and discounts:

• Size discount: SMEs are valued at lower multiples than mid-caps and large groups, from which most comparables are drawn. This discount is generally quantified via the size premium of the augmented CAPM model.
• Key-person dependency discount: when the company is highly centred on its founder, a specific discount is applied to reflect the risk of value loss post-transfer.
• Minority discount: if the shares transferred represent a minority stake, an additional discount applies to reflect the absence of control.

Since comparable transaction multiples are already drawn from private company sales, no additional illiquidity discount is applied — it is already integrated into the observed multiples. This distinction is essential to avoid double-counting.

Common trap: gross multiple applied to an unnormalised EBITDA, without size or key-person discount — the value is contested upwards by the French tax authority.

2. The DCF method (Discounted Cash Flows)

The DCF method discounts future free cash flows (Free Cash Flows to Firm) at the WACC, plus a terminal value representing the company’s value beyond the explicit forecast period (generally 5 to 7 years). It is the most rigorous method theoretically — and the most defensible before the administration if the assumptions are documented and realistic.

It rests on three critical parameters:

• The business plan: revenue growth assumptions, EBITDA margin and capex must be consistent with the company’s track record and sector outlook. An overly optimistic business plan produces an inflated value contested by the buyer — an overly pessimistic plan produces an undervalued figure susceptible to requalification as a disguised gift by the tax authority.
• The WACC: the discount rate must reflect the specific risk profile of the company, including the cost of equity (calculated via the augmented CAPM with size premium and specific risk premium), and the after-tax cost of debt. An underestimated WACC produces an inflated valuation that the administration can challenge systematically.
• The terminal value: it generally represents 60 to 75% of the total enterprise value in an SME DCF. Its calculation (perpetual growth rate or exit multiple) is one of the most sensitive points in the model.

Common trap: using an excessively low WACC (without size premium or specific premium), combined with an excessively high terminal growth rate — the two biases that produce the largest tax reassessments.

3. Net Asset Value / Revalued Net Asset Value (NAV / RNAV)

Net Asset Value (NAV) is the book value of equity as it appears on the balance sheet. Revalued Net Asset Value (RNAV) is its economically relevant version: each asset is retained at its market or replacement value rather than its historical cost, and each liability is retained at its market value.

The main restatements performed by Hectelion to move from NAV to RNAV include:

• Revaluation of tangible fixed assets: real estate (market value vs. net book value), equipment (replacement value or secondary market price), inventories (net realisable value).
• Valuation of intangible assets: goodwill, brand, customer portfolio, patents, software — not recorded on the balance sheet (or recorded for nil) but generating real economic value. See our intangible asset valuation service.
• Latent taxation: unrealised gains on revalued assets generate a latent tax liability (corporate tax) deducted from the RNAV. In France at 25% and in Switzerland at approximately 15% depending on the canton.
• Provisions and off-balance sheet commitments: pension provisions, guarantees given, ongoing litigation, finance lease commitments.

RNAV is the reference method for asset-heavy companies (pure holding, property company, heavy industrial company). Common trap: applying RNAV alone to a profitable and growing company — the administration systematically applies a complementary profitability criterion (practitioners’ method, DCF or multiples), retaining the higher of the two. Since LF 2026, the breakdown of luxury assets within the RNAV is a separate calculation step — each excluded asset must be isolated and its share of value calculated.

4. The listed comparables method

This method values the target company by reference to the valuation multiples of listed companies exercising a comparable activity. Unlike the transactions method, it is based on observable real-time stock market prices — which strengthens the verifiability of the market data retained and thus the defensibility of the report before the administration.

It requires however the application of three mandatory discount categories, presented in our article on valuation premiums and discounts:

• Illiquidity discount (DLOM — Discount for Lack of Marketability): the shares of an unlisted SME cannot be sold in seconds like a stock exchange share. This absence of a secondary market justifies a discount of 20 to 40% depending on the size and attractiveness of the company. Reference empirical studies (Duff & Phelps DLOM Guide, Damodaran) place the discount at 20-25% for larger SMEs (revenue > €10m, attractive sector, good profitability), and up to 35-40% for smaller structures (revenue < €5m, niche sector, high key-person dependency). The French tax administration’s valuation guide refers to discounts of 20 to 30% for unlisted shares. Important: this discount only applies to listed comparables — private transaction multiples already integrate it.
• Size discount: large market capitalisations are valued at higher multiples than SMEs due to their liquidity, diversification and access to capital markets. The size discount is quantified via the Duff & Phelps size premium (by capitalisation decile).
• Control discount: if the shares transferred represent a minority stake, an additional discount applies, generally between 15 and 25%.

This method is particularly relevant in sectors with a high density of listed comparables (technology, distribution, healthcare, financial services). It is less suited to niche sectors where available listed companies are too distant from the target’s profile. It generally produces a higher value than the private transactions method before applying discounts — hence the importance of rigorously documenting each adjustment.

The “secured median value” method

Cross-referencing the four methods, discarding the extremes, retaining the documented median value with a sensitivity analysis. This approach requires an independent valuation report that is dated, annexed to the deed of gift and retained for the duration of the recovery period. The advance tax ruling (rescrit fiscal) constitutes the maximum protection — equivalent to the Swiss FTA tax ruling (AFC / ESTV).

Quantified case study (fictitious data)

Company C SAS operates in the industrial sector.

Its normalised EBITDA stands at €2.5m. The donor is 67 years old and transfers to his two children. The 50% reduction before age 70 (art. 790 CGI) applies in all three scenarios.

Low scenario — RNAV only: business value €10m.‍

The taxable base after the 75% Dutreil allowance comes to €2.5m. After the legal allowance of €100k per child, the net taxable base is €2.3m, i.e. €1.15m per child. Applying the progressive scale of art. 777 CGI per child: 5% up to €8,072, 10% from €8,072 to €12,109, 15% from €12,109 to €15,932, 20% from €15,932 to €552,324, 30% from €552,324 to €902,838, then 40% beyond — amounting to approximately €312k per child before reduction. After the 50% reduction (art. 790 CGI), net taxes amount to approximately €312k for both children combined, representing an effective rate of 3.1% of the total value transferred. This scenario appears favourable — but it is the most dangerous: applying RNAV alone to a profitable company exposes the donor to an upward requalification by the tax authorities, who systematically apply a complementary profitability criterion. The potential reassessment entirely eliminates the apparent tax saving.

Median scenario — secured median value: business value €17m.‍

The taxable base after Dutreil comes to €4.25m. After the legal allowance, the net taxable base is €4.05m, i.e. €2.025m per child. The progressive scale mobilises the 20%, 30%, 40% and partially 45% brackets — amounting to approximately €673k per child before reduction. After the 50% reduction (art. 790 CGI), net taxes amount to approximately €674k for both children combined, representing an effective rate of 3.9% of the total value transferred. This is the only defensible valuation: built on the cross-referencing of four methods, documented, supported by a sensitivity analysis and annexed to the deed of gift. It withstands a challenge from the tax authorities.

High scenario — gross multiple without discounts: business value €25m.‍

The taxable base after Dutreil reaches €6.25m. After the legal allowance, the net taxable base is €6.05m, i.e. €3.025m per child. The progressive scale mobilises all brackets up to 45% — amounting to approximately €1,123k per child before reduction. After the 50% reduction (art. 790 CGI), net taxes amount to approximately €1,122k for both children combined, representing an effective rate of 4.5% of the total value transferred. This scenario generates immediate and avoidable overtaxation — the direct result of a valuation not adjusted for illiquidity, size and key-person dependency discounts.

The gap between the low and median scenarios illustrates the real Dutreil risk: not the amount of taxes paid on a defensible base, but the potential reassessment on an undervalued base. Between the median and high scenarios, the gap represents €448k in avoidable additional taxes through a rigorously adjusted valuation.

Indicative calculations based on the progressive scale of art. 777 CGI — direct line (2026). 50% reduction applied under art. 790 CGI (donor under age 70, full ownership gift). Legal allowance of €100k per child (art. 779 CGI). Actual taxes may vary depending on prior gifts and each specific situation. Consult a notary for a precise calculation.

Franco-Swiss specificity

The Pacte Dutreil is an exclusively French mechanism. In Switzerland, family business transfers benefit from other advantages: gift tax exemption in direct line (0% in virtually all cantons), no capital gains tax for individuals, and FTA tax ruling for advance clearance. For Franco-Swiss structures, Hectelion coordinates French and Swiss valuations ensuring coherence between the two fiscal regimes.

How Hectelion intervenes in a Pacte Dutreil engagement

Hectelion is neither a notary nor a tax lawyer. We intervene on the three financial and valuation components of the transfer — in full coordination with your legal and tax advisors.

1. Financial due diligence — before any valuation

Before setting the value of the shares transferred, independent financial due diligence is indispensable. Hectelion conducts revenue rationalisation (see how much is your business worth), EBITDA normalisation, normative working capital determination, net debt restatement, and since LF 2026, the qualification and breakdown of luxury assets.

2. Independent valuation — the cornerstone of the Dutreil file

The independent valuation must be completed before the deed of gift is signed. Hectelion deploys the four cross-referenced methods recognised by the administration: comparable transactions, listed comparables adjusted for illiquidity discounts (20-40%) and size, DCF at the WACC, and adjusted RNAV. The report is enforceable against the administration in the event of an audit.

3. Financial structuring

The financial structuring includes the key arbitrage before/after age 70 (art. 790 CGI), bare ownership or full ownership, articulation with the family holding company, Family Buy-Out modelling, and the financial business plan required by banks and for advance tax ruling.

Pacte Dutreil checklist — 10 points to verify before signing

Hectelion provides an operational checklist covering the 10 critical points of a Dutreil transfer: company eligibility, collective and individual undertakings, effective management condition, LF 2026 luxury assets, effective tax rates by donor age, and defensible valuation. Includes a “With / Without Pacte Dutreil” simulator with automatic effective tax rate calculation. → Contact Hectelion to receive the checklist.

6 errors to avoid in a Pacte Dutreil

• Undocumented valuation: a price set without an independent report is the primary cause of Dutreil tax reassessments.
• RNAV alone applied to a profitable company: the administration systematically applies a complementary profitability criterion.
• Gross multiple without discounts: size, key-person dependency, minority — the tax authority accepts them if documented.
• Illiquidity discount not justified or applied with double-counting: it only applies to listed comparables, not to private transaction multiples.
• Forgetting LF 2026 luxury assets: their share of value has been excluded from the Dutreil base since 21/02/2026.
• Symbolic or nominal management: a directorship without operational substance can trigger total reversal of the exemption.

Advantages and limitations of the Pacte Dutreil

Advantages: 75% exemption on transfer taxes, cumulative with the €100k/child allowance and the 50% reduction before age 70 (art. 790 CGI), deferred payment facilities over 15 years, transfer without forced sale. Limitations: 8-year commitment period (LF 2026), effective management constraint, increasing documentary complexity, risk of reversal in the event of breach.

A word from the Managing Director

The Pacte Dutreil is, alongside bare ownership dismemberment, the most powerful tax mechanism in French family business transfers. In twenty-three years of existence, it has enabled thousands of businesses to be transferred without forcing heirs to sell them to pay inheritance taxes. This is not a tax gift — it is an economic policy: the State agrees to forgo a considerable fraction of its tax revenue in exchange for the continuity of family businesses, their jobs and their territorial roots.

What we regularly observe at Hectelion: business owners who have perfectly anticipated the legal aspects — collective undertaking signed, individual undertaking planned, management function identified — but who arrive with an undocumented valuation, prepared by their accountant in a few hours on the basis of gross accounting EBITDA. The administration waits six years. When it acts, it does not question the undertaking — it questions the value. And the gap between the declared value and the retained value can represent several years of EBITDA in additional taxes and penalties.

Our role at Hectelion is precisely this: producing the defensible valuation before the gift — not after the audit. With four cross-referenced methods, documented discounts, sourced comparables and a sensitivity analysis that will hold up against a tax inspector. The second thing we do systematically: model the impact of the donor’s age. The gap between a gift made at age 69 and a half and the same gift six months later often represents €150k to €300k in additional taxes. This calendar costs nothing to optimise — provided you think about it in time.

Aristide Ruot, Ph.D — Founder & Managing Director, Hectelion

FAQ — Pacte Dutreil 2026

What is the effective tax rate with a Pacte Dutreil?

According to the Cour des comptes (November 2025): ~4.2% before age 70 (€20m SME, 2 children); ~1.63% for a €2.5m SME; ~8-9% after age 70; ~0.7% in well-structured bare ownership. Without Dutreil: 25 to 42%.

Can the value of shares be set freely in a Pacte Dutreil?

No. The tax authorities expect a real market value. An undervalued figure can be requalified as a disguised gift. A dated independent valuation report is indispensable.

Which valuation method does the French tax authority prefer?

It expects a documented multi-criteria approach: comparable transactions + listed comparables adjusted for illiquidity discount (20-40%) + DCF + adjusted RNAV, producing an explicit median value.

Does LF 2026 apply to pacts already signed before 21/02/2026?

The extension to 6 years of the individual undertaking applies to transfers completed since 21 February 2026. Ongoing collective undertakings are not retroactively modified.

Can Dutreil, the €100k allowance and the 50% reduction before age 70 be combined?

Yes. Dutreil 75% allowance (art. 787 B) first, then €100k allowance per child, then 50% reduction if the donor is under 70 (art. 790 CGI). Combination possible: less than 2% of the value transferred.

Is there an equivalent of the Pacte Dutreil in Switzerland?

No. In Switzerland: gift tax exemption in direct line (0% in virtually all cantons), no capital gains tax, FTA tax ruling for advance clearance. See our article on family business transfer in Switzerland.

What is an advance tax ruling (rescrit fiscal)?

A prior request to the tax administration whose positive response binds the administration. Recommended for any transfer above €5m or complex structure.

Does the Pacte Dutreil apply to an operating holding company?

Yes, if the holding company exercises effective animation of the group (Cass. com. 17/11/2025, n°24-17.415; art. 787 B as amended by LF 2024).

Compatible with bare ownership dismemberment?

Yes. The 50% reduction (art. 790 CGI) only applies to full ownership. In well-structured dismemberment, the effective rate can fall to 0.7%.

Consequences of a breach of the undertaking?

Total reversal of the exemption, immediate payment of evaded taxes plus late interest. Exception: transfer to another signatory of the collective undertaking under conditions.

Does the Pacte Dutreil affect the IFI (French wealth tax)?

Operational shares exempt under Dutreil are also exempt from IFI (art. 975 CGI) during the undertaking period. The luxury asset fraction excluded since LF 2026 remains in the IFI base.

Would you like to transfer your business, have it valued or structure a gift?

Hectelion conducts all these engagements in France and Switzerland.
→ Book a call — 30 minutes, confidential

Conclusion: Pacte Dutreil 2026 — anticipate, value, structure

The Pacte Dutreil reduces the effective tax rate on a business transfer from 25-42% to below 5% — sometimes below 2%. The 2026 Finance Act reinforced two constraints: the extension to 6 years of the individual undertaking and the exclusion of luxury assets. These developments reinforce the need for thorough financial due diligence, a rigorous independent valuation based on four cross-referenced methods with justified illiquidity discounts, and precise financial structuring — particularly on the donor age arbitrage.

Three categories of error account for virtually all post-Dutreil tax reassessments: undocumented valuation, unqualified luxury assets since LF 2026, and ineffective management. A well-prepared file transforms the audit risk into a controlled negotiation. A poorly prepared file transforms a €1.3m tax saving into a €700k reassessment plus penalties.

At Hectelion, an independent advisory firm active in France and Switzerland, we intervene on the financial and valuation components of Dutreil transfers — in coordination with notaries, tax lawyers and accountants. Our commitment: producing the defensible valuation before the gift, not after the audit.

Contact us for an initial confidential discussion — 30 minutes, no commitment.

Sources

• CGI art. 787 B, 787 C and 790 — legifrance.gouv.fr
• 2026 Finance Act (loi n°2026-103 du 19/02/2026, art. 8) — economie.gouv.fr
• Cour des comptes — Pacte Dutreil Report, 18 November 2025 (budget cost €5.5bn in 2024; effective rates 1.63%, 4.2%, 0.7%)
• EY — Family Business Transfer Barometer, 2025
• Duff & Phelps — DLOM Guide (Discount for Lack of Marketability)
• Damodaran, A. — Investment Valuation, 3rd ed., Wiley, 2012
• Argos Index® Q4 2025 — Epsilon Research / Argos Wityu (8.3x EV/EBITDA)
• Cass. com., 17/11/2025, n°24-17.415 (operating holding company)
• BOFIP — BOI-ENR-DMTG-10-20-40-10 — bofip.impots.gouv.fr
• Swiss FTA / ESTV — Tax circulars 2026 — estv.admin.ch
• Hectelion observation (2026)

Author

Aristide Ruot, Ph.D
Founder | Managing Director