French transfer tax and sale of shares/interests in French companies: rule clarification French transfer tax rules applicable to sales/deemed sales of shares/interests in French companies or predominantly French real estate companies have been significantly changed several times over the last few months.

Below is a clarification of the rules.

Sale of shares/interests in French legal entities that cannot be viewed as predominantly French real estate companies

Until 31 December 2011, sales of shares in an SA or an SAS was subject to a 3% transfer tax, capped to 5,000 Euros per transaction, while the sale of an interest in an SARL, or a non-commercial entity, was subject to a 3% transfer tax, with no cap (the first 23,000 Euros being exempt on a prorata basis). Those rules have been significantly modified by the Finance Bill for 2012, enacted on 30 December 2011, and then by the First Amended Finance Bill for 2012, enacted on 15 March 2012.

Sale of shares/interests completed between 1 January 2012 and 31 July 2012From 1 January 2012, sales of shares in an SA or SAS are subject to French transfer tax at the following rates (with no cap):

• 3% on the portion of the sales price or the fair market value, whichever is higher, up to 200,000 Euros;

• 0.5% on the portion between 200,000 and 500,000,000 Euros; and

• 0.25% on the portion that exceeds 500,000,000 Euros.

13 April 2012

International Tax Alert

International Tax Alert 2

The new rules apply to sales of shares even if the transfer deed is not executed in France. However, transfer tax paid abroad should be offset against the French transfer tax.

Sales of shares in listed companies are still tax exempt unless they are transferred upon a written transfer deed executed in France or abroad (cf. ruling #2012/7 published on 21 February 2012).

Transfer tax rules applied to sales of interests in an SARL or another French non-commercial entity, have not changed. Therefore, those transactions are still subject to the French 3% transfer tax, assessed on the sales price or the fair market value, whichever is higher, with no cap (the first 23,000 Euros being exempt).

In addition, the Finance Bill for 2012 introduced new exceptions that apply to the sale of either shares in an SA/SAS, or interests in an SARL or a non-commercial entity. Therefore, the following transactions are now transfer tax exempt:

• Sales of shares in the context of a share buy-back (since 16 March 2012, this only benefits listed companies) or a capital increase;

• Sales of shares/interests between companies member of the same French tax consolidated group;

• Partial contribution of assets and demergers as defined under the French deferral tax regime; and

• Sales of shares in a company subject to a bankruptcy or safeguard procedure.

Sale of shares/interests completed as from 1 August 2012If the transfer tax regime applied to the sale of interests in an SARL, or a non-commercial company has not been changed, the transfer tax rules applied to sales of shares in an SA or SAS have, and will be subject to a proportional and unique transfer tax rate of 0.1% as from 1 August 2012.

The First Amended Finance Bill for 2012 also extended the transfer tax exempt transactions. As from 1 August 2012, the following should be exempted:

• Transactions subject to the new 0.1% French financial transaction tax;

• Sales of shares/interests between companies member of the same French tax consolidated group;

• Sales of shares/interests between related parties as defined by article L233-3 of the French commercial code, i.e., basically companies that are, directly or indirectly, held by the same controlling company;

• Mergers, partial contributions of assets and demerger within the meaning of articles 210 A and B of the French tax code (FTC), i.e., transactions qualifying for French deferral tax regime benefits;

• Management buy-out qualifying upon articles 220 quater, 220 quater A and B of the FTC;

• Sales of shares in the context of a share buy-back when acquired shares should be on-sold to employee saving scheme

participants (as of 16 March 2012, this only benefits listed companies);

• Sales of shares in the context of a capital increase; and

• Sales of shares in a company subject to a bankruptcy or safeguard procedure.

Sales of shares/interests in predominantly French real estate entities

While the transfer tax rate applied to sales of shares/interests in French or foreign predominantly French real estate companies has not been changed, the French 5% transfer tax rate is no longer assessed on the sales price or the fair market value of the shares/interests, whichever is higher.

As from 1 January 2012, the 5% transfer tax is assessed on the fair market value of the transferred French real estate assets and rights that are directly or indirectly owned, decreased by the liabilities related to the acquisition of those assets, and increased by the fair market value of the other assets. All other liabilities (and notably those related to non-real estate assets such as maintenance and improvement expenditures and costs of repairs) are not deductible for purposes of assessing the French real estate transfer tax.

As a reminder, sales of shares in predominantly French real estate listed companies are subject to the standard transfer tax rules and therefore exempt if not executed upon a written transfer deed.

3International Tax Alert

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, French Tax Desk, New York• Frédéric Vallat +1 212 773 5889 frederic.vallat@ey.com• Céline Correia +1 212 773 9164 celine.correia@ey.com• Stephanie Woringer +1 212 773 1271 stephanie.woringer@ey.com

4 International Tax Alert

www.ey.com

© 2012 EYGM Limited. All Rights Reserved.

EYG no. CM2795

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. Ernst & Young LLP is a member firm of Ernst & Young Global Limited, serving clients in the US.

International Tax ServicesAbout Ernst & Young’s International Tax services practices

Our dedicated international tax professionals assist our clients with their cross-border tax structuring, planning, reporting and risk management. We work with you to build proactive and truly integrated global tax strategies that address the tax risks of today’s businesses and achieve sustainable growth. It’s how Ernst & Young makes a difference.

Ernst & Young

Assurance | Tax | Transactions | Advisory

Ernst & Young International Tax Services• Global ITS, Jim Tobin

• Americas, Jeffrey Michalak

• Asia Pacific, Alice Chan

• Europe, Middle East, India and Africa, Alex Postma

• Japan, Kai Hielscher

• Argentina Carlos Casanovas Buenos Aires• Australia Daryn Moore Sydney• Austria Roland Rief Vienna• Belgium Herwig Joosten Brussels• Brazil Gil Mendes Sao Paulo• Canada George Guedikian Toronto• Central America Rafael Sayagues San José• Chile Osiel Gonzalez Santiago• China Becky Lai Beijing• Colombia Ximena Zuluaga Bogota• Czech Republic Libor Frýzek Prague• Denmark Niels Josephsen Soborg• Finland Katri Nygård Helsinki • France Claire Acard Paris• Germany Stefan Koehler Frankfurt• Hong Kong Christian Pellone Hong Kong• Hungary Botond Rencz Budapest

Balazs Szolgyemy Budapest• India Hitesh Sharma Mumbai• Indonesia Peter Ng Jakarta• Ireland Joe Bollard Dublin• Israel Sharon Shulman Tel Aviv• Italy Marco Magenta Milan• Japan Kai Hielscher Tokyo• Korea Kyung-Tae Ko Seoul• Luxembourg Frank Muntendam Luxembourg• Malaysia Hock Khoon Lee Kuala Lumpur• Mexico Koen van ‘t Hek Mexico City• Middle East Tobias Lintvelt Abu Dhabi

Michelle Kotze Dubai• Mongolia Christian Pellone Hong Kong• Netherlands Johan van den Bos Amsterdam• Norway Oyvind Hovland Oslo• Peru Roberto Cores Lima• Philippines Ma Fides Balili Makati City• Poland Andrzej Broda Warsaw• Portugal Antonio Neves Lisbon• Russia Vladimir Zheltonogov Moscow• Singapore Andy Baik Singapore• South Africa Justin Liebenberg Johannesburg• Spain Federico Linares Madrid• Sweden Erik Hultman Stockholm• Switzerland Daniel Gentsch Zurich• Taiwan Alice Chung Taipei• Thailand Anthony Loh Bangkok• Turkey Feridun Gungor Istanbul• United Kingdom Matthew Mealey London

Anna Anthony London• United States Jeffrey Michalak Detroit• Venezuela Jose Velazquez Caracas• Vietnam Nitin Jain Hanoi

Ernst & Young Member Firm Contacts