The French Conseil d’Etat has referred to the French Conseil Constitutionnel on the question of the constitutionality of article 150-0 A of the French General Tax Code (CGI) which does not allow a taxpayer who has sold his shares by means of a vendor-credit mechanism to reduce his taxes according to the actual amounts received
Within the framework of a transaction, when a taxpayer sells his shares and a crédit-vendeur mechanism (1) is implemented for either part or all of the transaction, the taxable gain is based on the full sale price. Indeed, crédit-vendeur is solely a payment method and has no impact on the taxable event or calculation of the taxable gain.
Hence, a taxpayer may have to pay tax even if he does not have the relative income, which is contradictory to the principle of taxation of disposable income as provided for by article 156 of the French General Tax Code (“CGI”).
As of 1st January 2019, French legislator therefore adopted article 1681 F of the CGI, which provides for tax to be paid in instalments when a crédit-vendeur mechanism is implemented. Payment staggering is rarely applied as its scope of application is very restrictive. It effectively only concerns transfers of companies or corporate rights that meet all of the four following conditions:
– less than 50 employees; and
– total balance-sheet or turnover not in excess of €10 M for the financial year during which the sale takes place; and
– which correspond to the European definition of a small enterprise (Reg. 651/2014 of 17-6-2014); and, for the transfer of corporate rights,
– the transfer must concern the majority of the company’s share capital.
Hence, a taxpayer considered that the provisions of article 150-0A of the CGI are in violation of the principle of equality in respect of state taxes as they do not provide for a reduction in taxes according to amounts actually received when taxpayers have sold shares by means of a crédit-vendeur mechanism. The taxpayer therefore questioned the constitutionality of this article.
The French Conseil d’Etat judged that the Priority Question of Constitutionality was a serious and legitimate question and referred it to the French Conseil Constitutionnel (CE, QPC 13/10/2021 n°452773).
(1) Crédit-vendeur is a contractual practise that consists in staggering the payment of the price according to a schedule agreed upon by the parties.
