Today is: 30 July 2010
Please note that French tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
The transfer of French property usually gives rise to a charge to French stamp duty ("droits d'enregistrement") of 5% (4.8% before 2006) of the value of the transaction. This is in addition to the notaire's fee of around 1%.
Property owned by French Company
If the property is owned by a company the question arises as to whether the same rate of stamp duty is payable on the transfer of shares. In the case of a transfer of shares in a French SCI there is no doubt the same duty is payable. The only possible saving is that you do not have to use a notaire as no transfer of land takes place.
Property owned by Non-French Company
If the property is owned by a non French company the position is less clear. The buyer's argument is that the registration of the shares in the buyer's name does not take place in France and as such France does not have competence to levy stamp duty.
The French Revenue's position is set out in a release (D.Admin 7 D-5 No 12 15 June 2000). They take the view that if the company is a property company (more than 50% of its assets are French land) then any share transfer is taxable in France at 5% regardless of whether the share transfer is effected within or outside France.
Turretini Case
The above position was thrown into doubt in the Turretini case (TGI Nice 27.9.2007 - No 05-1327) which decided that a transfer of shares in a Monegasque company which owned as its main asset a villa in France was not taxable to 5% duty as document not executed in France.
In this case a Monegasque company owned a French property. The shares were sold to Mr Turretini who registered the transfer in Monaco and paid 1% Monegasque stamp duty. The French Tax Administration assessed him to French stamp duty at 4.8% on the basis that the company's assets were mainly French property and so taxable regardless of where the transfer document was signed.
Mr Turretini said that Article 718 of the French Tax Code took precedence over Article 726 which imposed the charge. Article 718 states that when a transfer operates by way of an act passed in France the transfer of non French moveable assets (e.g. foreign shares) is taxable in the same way as a French asset.
The French Revenue said that the charging Articles 635, 639 and 726 expressly made an exception to the general rules on territoriality and imposed a charge of 4.8% regardless of whether the transfer was made by a French land transfer deed or not.
The court decided that the territoriality requirement in Article 718 took precedence and this meant that without a deed executed in France no French stamp duty was payable.
Position post Turretini
The French Tax Administration has said it will maintain its position (14 October 2008 No 2008/22) that such transactions are taxable. Their position is that Article 726-I-2 taxes at 5% transfers of shares in property companies. The only requirement is that the assets of the company must be more than 50% French property. In their view Article 726-1-2 expressly derogates from the territoriality principle in Article 718. We have not however seen this enforced in practice, though a case may be taken by the French Revenue in due course.
Conclusion
The practical approach is to carry out any share transfer outside France and to pay all local taxes where the company is resident and carry out all registration requirements without any deed being entered into in France. If the French Revenue were ever to successfully challenge the transfer as stampable then the loss will be the non French stamp duty which has been paid. There are some other tax advantages in using a Monegasque SCI rather than a French SCI, especially for high value French properties, which is rarely brought to the attention of buyers by French notaires.