SALE OF SECURITIES BY MEANS OF A VENDOR CREDIT: TAXATION OF THE ENTIRE CAPITAL GAIN IS CONSTITUTIONAL

In a decision of January 14, 2022 (Cons. const. 14-1-2022 n° 2021-962 QPC), the French Constitutional council validates the provisions leading to the immediate taxation of the totality of the capital gain realized at the time of a transfer of securities by means of a vendor credit, even though a part of the transfer price has not yet been paid.

In application of the provisions of articles 150-0 A and following of the CGI, the transfer for valuable consideration of the securities of a company generating a taxable capital gain must be considered as the date on which the transfer of ownership takes place, regardless of the methods of payment and the events subsequent to this generating event.

Since January 1, 2019, it is now possible for a vendor to override this principle and request, in accordance with Article 1681 F of the CGI, a staggered payment of the capital gains tax under certain conditions (in particular, the company’s turnover must be less than ten million euros). It is important to note that this staggered payment plan does not offer the vendor the possibility of requesting a correction of his taxation.

In this case, the applicants consider that the provisions of articles 150-0 A and following of the CGI infringe the principle of equality before public charges, as they do not provide for the possibility for the taxpayer to obtain a reduction of his tax on the capital gain from the sale of securities, when the totality of the sale price has not yet been received, in particular within the framework of a vendor credit.

This question, which, according to the French administrative supreme Court, is of a serious character, was therefore referred to the French Constitutional Council (CE 13-10-2021, no. 452773), which found that the contested provisions do not violate the principle of equality before public charges.

The French Constitutional Council considers first that pursuant to article 1583 of the French Civil Code, the taxpayer has acquired, at the date of the sale, a definite receivable of which he can dispose freely.

Secondly, the fact that part of the transfer price has to be paid by the transferee to the taxpayer on a deferred basis, if necessary by means of a vendor credit, is a matter of the contractual form that they have freely chosen. The fact that subsequent events affect the amount of the price actually paid to the taxpayer has no impact on the assessment of the taxpayer’s tax capacity for the tax year.

Consequently, the French Constitutional Council considers that the provisions setting the taxable event for the capital gain at the time of the transfer of ownership of the securities are in conformity with the Constitution, even in the context of a vendor credit.

Tax Law Team