Structuring a cross-border investment
Holding company, SOPARFI, French property company: choosing the structure of an international investment and giving it real substance.
Contents
The situation
An investment abroad, or a French investment held from abroad. You are offered a holding company in a neighbouring State, a civil company for the property, a scheme for channelling the flows upwards.
On paper it works. The question that decides everything lies elsewhere: what will remain of that structure once the French authorities apply their own rules to it.
What the rules say
| Provision | What it allows the authorities to do |
|---|---|
| Article 209 B of the tax code | tax in France the profits of a foreign entity subject to a privileged tax regime and controlled by a French company |
| Article 123 bis | tax a French resident individual on the income of a foreign entity with a privileged regime in which he holds an interest |
| Abuse of law | set aside an artificial arrangement, or one pursuing an exclusively or principally tax purpose |
| Treaty and European anti-abuse clauses | refuse a reduced rate or an exemption to a conduit entity |
| Article 57 | adjust the prices charged between related entities |
What all of these share is substance: governing bodies that genuinely decide where they sit, resources, staff, documented decisions.
What the firm does with those rules
Before incorporation, the work is to draw the target structure and test it against each of those provisions, then to define what the structure will have to show: where the board meets, who signs, what resources of its own, and what economic reason there is for choosing that State.
It also means choosing the vehicle for what it does rather than for its name: a Luxembourg financial participation company, a civil property company, a local holding vehicle answer different needs. See SOPARFI and international property holdings.
After incorporation, it means maintaining that substance over time. A structure defensible in its first year and neglected in its third defends badly in its fifth.
Frequently asked questions
Is a foreign holding company lawful?
Yes. What is penalised is not the location, it is the absence of reality and the pursuit of an exclusively tax purpose.
What does substance mean in practice?
Premises, resources, directors who decide on site, board minutes kept in the State of the registered office, local accounts, and an economic reason for choosing that State.
What counts as a privileged tax regime?
The code compares the tax actually borne with the tax that would have been due in France, using a statutory margin. The analysis is done entity by entity.
Must a foreign shareholding be reported in France?
Yes, and several reporting duties apply. Failure to comply opens an extended assessment period.
This article sets out a general framework and is no substitute for a review of your file: every situation has its own dates, figures and documents.