Download lease-back of buildings: the amending finance law for 2009 lifts a

NEWSLETTER TAX 09 – APRIL 2009
Lefèvre Pelletier & associés is one of France’s leading law firm, with more than 150 lawyers.
LEASE-BACK OF BUILDINGS: THE AMENDING FINANCE LAW FOR 2009
LIFTS A MAJOR TAX OBSTACLE
> The capital gain realised on the disposal of the building to the lessor is not taxable immediately (at 34.43%) but
rather over the term of the leasing agreement (capped at 15 years). This regime is applicable to lease-back operations
carried out from April 2009 and 2010.
Lease-back of a building indicates an operation whereby the owner of a building disposes of it to a leasing company, with
which it immediately concludes a lease-back agreement for the building sold. This operation allows the owner of the
building access to the financial resources that correspond to the selling price of the building, while retaining the asset
disposed of (by means of payment of a charge over the term of the lease-back agreement) and the option of re-establishing ownership at the end of the lease-back agreement. This regime is also interesting for the financial establishment on
account of the guarantee it receives (i.e. ownership of the building).
Lease-back offers a refinancing tool of at this time of crisis. However, if the asset concerned conceals a significant deferred capital gain, the taxation triggered by its transfer to the lessor will make the operation very expensive and often
impossible.
> A favourable existing regime for registration fees…
The disposal of the building to the lessor is subject to registration fees at a rate of 0.715% instead of 5.09% (Article
1594 F quinquies H of the General Tax Code). The application of this reduced rate is subject to the conclusion of the
lease-back agreement immediately after the sale, and the registration of the contract if its term is greater than 12 years.
> ...which will now be the case for corporation tax: spreading of the taxation of the capital gain on disposal over the
term of the lease-back agreement (capped at 15 years)
Until now, lease-back has generally involved a significant tax cost for the assignor, as the capital gain on disposal of the
building was included in the result liable to CT at a rate of 34.43% for the financial year in which the lease-back operation occurred.
The amended Finance Law for 2009, adopted on 9 April 2009, introduced an optional, temporary exemption from
this principle of immediate taxation of the capital gain. Indeed, Article 3 provides that the assignor can distribute the
capital gain on disposal of the building in equal shares over the financial years closed during the term of the lease-back
agreement. The maximum period over which the capital gain can be spread is 15 years; the untaxed balance of the
capital gain will be immediately taxed in the event of an early exercise of the option to purchase under the agreement
or of its cancellation.
This spreading of the capital gain on disposal of the building is particularly interesting, as the results for the financial
years during this period will also be reduced by the amount of the leasing charges (fully deductible except at the end
of the contract, with the exception of the special case of office buildings in the Ile-de-France region). In practice, there
should be at least a partial offset of the taxation of the capital gain and the benefit to be gained from deducting the
leasing charges (determined on the basis of the building’s new value).
NEWSLETTER TAX 09 – APRIL 2009
Lefèvre Pelletier & associés is one of France’s leading law firm, with more than 150 lawyers.
LEASE-BACK OF BUILDINGS: THE AMENDING FINANCE LAW FOR 2009
LIFTS A MAJOR TAX OBSTACLE
This measure is applicable to disposals of buildings as from April 2009 (specifically, the day after the publication of the
amended Finance Law) until 31 December 2010.
> Note also that another amendment voted within the framework of the amended Finance Law for 2009 provides
for a measure favouring operations to repurchase receivables by the debtor at a reduced price, namely by spreading
the profit over five financial years on payment of interest at a rate of 7.2%. This measure is of little interest from a
tax perspective, and other schemes for repurchasing receivables should be preferred.
Contacts
Pierre Appremont
Partner
[email protected]
Tel.: +33 (0)1 53 93 30 12
Samuel Drouin
Counsel
[email protected]
Tel.: +33 (0)1 53 93 39 10
Lefèvre Pelletier & associés is one of France’s leading law firm.
With more than 150 lawyers, the firm has expertise in all areas of business law.
www.lpalaw.com