The transfer of a family business often represents a major tax challenge. Transfer duties can reach considerable amounts, jeopardizing the long-term viability of the business. The Dutreil pact is a tax-efficient way of significantly reducing this burden. Under certain conditions, you can benefit from a 75% tax exemption on the value of the shares transferred. This mechanism is part of an overallwealth optimization strategy that every manager should consider.

What is the Dutreil pact?

The Dutreil pact, officially known as a collective undertaking to retain shares, is a tax mechanism set out in Articles 787 B and 787 C of the French General Tax Code. It entitles the holder to an exemption of 75% of the value of the shares transferred in the event of a gift or inheritance. This mechanism applies to companies carrying on an industrial, commercial, craft, agricultural or liberal activity, as well as to “animating holding companies” under strict conditions. For the latter, effective leadership of the group and active management of shareholdings are decisive criteria.

The tax advantage is considerable: you only pay transfer duties on 25% of the value of the shares. After applying standard deductions, the tax saving can amount to several hundred thousand euros.

Eligibility requirements

The Dutreil pact is subject to strict conditions that you must scrupulously respect. These requirements are designed to ensure that the scheme benefits genuine, active family businesses, rather than simple wealth management schemes. Failure to comply with any of these conditions means that the exemption will be revoked, and you will have to pay the duties initially saved.

The tax authorities check three categories of conditions: the collective undertaking to retain the shares by the partners, the individual undertaking by the beneficiary of the transfer, and the conditions of effective activity in the company. This rigorous approach is part of a strategy of optimal taxation that balances tax benefits with business continuity. Understanding these requirements enables you to anticipate risks and secure your transfer.

Collective undertaking to retain shares

The first condition is that the shareholders must enter into a collective undertaking to retain the shares. This commitment must cover at least 17% of financial rights and 34% of voting rights for listed companies, or 10% and 20% respectively for unlisted companies. The minimum duration of this commitment is two years.

The signatories must have their main activity in the company, or together hold more than 50% of the financial and voting rights. This condition guarantees that the pact concerns an active family business and not a simple financial investment.

The individual undertaking to retain shares

Beyond the collective undertaking, each beneficiary of the transfer must enter into an individual undertaking to retain the shares. This covers the shares received, and extends for a period of four years from the end of the collective undertaking. The total holding period is therefore a minimum of six years.

During this period, you cannot sell the shares without losing the benefit of the exemption. However, there are certain exceptions, notably in the event of redundancy, disability or death of the beneficiary.

Business conditions

One of the signatories of the agreement must carry out his or her main activity in the company throughout the term of the collective undertaking and for three years following the transfer. This requirement distinguishes genuine family businesses from purely patrimonial arrangements.

For holding companies, additional conditions apply. The holding company must effectively run the group, actively participating in defining strategy and controlling subsidiaries. A simple passive holding of shareholdings is not sufficient.

Collective undertaking to retain shares

The first condition is that the shareholders must enter into a collective undertaking to retain the shares. This commitment must cover at least 17% of financial rights and 34% of voting rights for listed companies, or 10% and 20% respectively for unlisted companies. The minimum duration of this commitment is two years.

The signatories must have their main activity in the company, or together hold more than 50% of the financial and voting rights. This condition guarantees that the pact concerns an active family business and not a simple financial investment.

Individual commitment to retain shares

Beyond the collective undertaking, each beneficiary of the transfer must enter into an individual undertaking to retain the shares. This covers the shares received, and extends over a period of four years from the end of the collective undertaking. The total holding period is therefore a minimum of six years: two years of collective commitment followed by four years of individual commitment.

During this period, you cannot sell the shares without losing the benefit of the tax exemption. The tax authorities are particularly vigilant about compliance with this obligation. However, there are certain exceptions, notably in the event of redundancy, disability or death of the beneficiary. These situations allow for early sale without jeopardizing the scheme.

Business conditions

One of the signatories of the agreement must carry out his or her main activity in the company throughout the term of the collective undertaking and for three years following the transfer. This requirement distinguishes genuine family businesses from purely patrimonial arrangements.

For holding companies, additional conditions apply. The holding company must effectively run the group, actively participating in defining strategy and controlling subsidiaries. A simple passive holding of shareholdings is not sufficient.

The applicable tax regime

The 75% exemption

The main advantage of the Dutreil Pact is the exemption of 75% of the value of the shares transferred. This exemption applies before any other allowance. You can therefore combine this reduction with standard deductions: 100,000 euros per parent and per child every fifteen years, for example.

For a gift of shares valued at 2 million euros, the tax base is reduced to 500,000 euros. After applying the parent-child allowance of 100,000 euros, only 400,000 euros are subject to gift tax. Tax savings often exceed 400,000 euros.

Capital gains tax

The Dutreil pact concerns only the tax on gratuitous transfers. It has no direct impact on the taxation of capital gains in the event of a subsequent sale of the shares. However, other measures can be applied to optimize taxation, such as article 150-0 B ter of the CGI, which allows tax deferral.

Some taxpayers combine several mechanisms: donation with a Dutreil pact, followed by acontribution-assignment transaction to defer capital gains taxation. This strategy requires rigorous legal and tax support.

The 75% exemption

The main advantage of the Dutreil Pact is that it exempts 75% of the value of the shares transferred. This exemption applies before any other tax allowance, and is combined with the general tax provisions applicable to gifts and inheritances: allowance of 100,000 euros per parent and per child every fifteen years, tax reductions based on the donor’s age, etc. This combination of tax advantages means that transfer taxes on the transfer of a family business can be considerably reduced, or even completely eliminated.

Capital gains tax

The Dutreil pact concerns only the tax on gratuitous transfers. It has no direct impact on the taxation of capital gains in the event of a subsequent sale of the shares. However, other measures can be applied to optimize taxation, such as article 150-0 B ter of the CGI, which allows tax deferral.

Some taxpayers combine several mechanisms: donation with a Dutreil pact, followed by acontribution-assignment transaction to defer capital gains taxation. This strategy requires rigorous legal and tax support.

The risk of being called into question

Failure to meet commitments

Breach of the undertaking to retain entails retroactive cancellation of the exemption. In this case, the tax authorities claim back the tax initially exempted, plus late payment interest of 0.20% per month. Penalties may also apply if the breach is considered voluntary, considerably increasing the total tax burden.

You therefore need to anticipate risky situations: early sale, dissolution of the company, change of activity. Certain restructurings can be carried out without calling the covenant into question, but they must be carefully supervised.

Tax audits

Tax authorities pay particular attention to Dutreil agreements during tax audits. In particular, it verifies the reality of the operational activity, the effectiveness of the management for holding companies, and compliance with the conditions for carrying out the principal activity.

The penalties can be severe. A holding company considered as passive will lose the benefit of the scheme for the entire transfer. The qualification of a signatory’s principal activity may also be challenged if he or she also carries out other important professional activities.

Failure to meet commitments

Breach of the undertaking to retain entails retroactive cancellation of the exemption. In this case, the tax authorities claim back the tax initially exempted, plus interest on arrears, the rate of which is regularly revised. Penalties may also apply if the breach is considered voluntary.

You need to anticipate high-risk situations: early sale, dissolution of the company, change of activity. Certain restructurings can be carried out without calling the covenant into question, but they must be carefully supervised.

Tax audits

Tax authorities pay particular attention to Dutreil agreements during tax audits. In particular, it verifies the reality of the operational activity, the effectiveness of the animation for holding companies, and compliance with the conditions for exercising the principal activity. Auditors also examine the consistency between the commitments made and their actual application.

Adjustments can be significant, and may affect the entire tax advantage obtained. A holding company considered as passive will lose the benefit of the scheme for the entire transfer. The qualification of a signatory’s principal activity can also be challenged if he or she also carries out other important professional activities. In this case, the tax authorities will reclaim the transfer duties initially exempted, together with interest for late payment and potential penalties.

Advanced optimization strategies

Pre-sale donation

The gift-before-sale technique can be combined with the Dutreil pact. You pass on the shares to your children, benefiting from the 75% exemption, who then sell the company after the commitment period. This strategy allows you to purge the latent capital gains while optimizing transfer taxes.

The articulation between these systems requires precise planning. Deadlines must be scrupulously respected to avoid any recharacterization as an abuse of rights. The support of a lawyer specialized in property law is essential.

Property dismemberment

The dismemberment of ownership is another optimization technique compatible with the Dutreil Pact. You can give bare ownership of the shares to your children, while retaining the usufruct. This operation reduces the taxable base of the gift thanks to a specific tax allowance, with the 75% exemption then applying to the value of the bare ownership.

On your death, the usufruct is extinguished without further taxation. Your children then become full owners of the shares. This technique optimizes the transfer of shares over two generations, while retaining control of the company during your lifetime.

Pre-sale donation

The gift-before-sale technique can be combined with the Dutreil pact. You pass on the shares to your children, benefiting from the 75%exemption, who can then sell the company after the commitment period. This strategy allows you to purge the latent capital gains while optimizing transfer taxes.

Property dismemberment

The dismemberment of ownership is an optimization technique compatible with the Dutreil pact. You give bare ownership of the shares to your children while retaining the usufruct, which reduces the taxable base of the gift, on which the 75% exemption then applies. The usufruct is extinguished tax-free on your death, enabling your children to become full owners while you retain control of the company.

Secure your business transfer

Optimizing the transfer of your family business requires specialized expertise to navigate through the many conditions of the Dutreil Pact and avoid any risk of it being called into question. Given the considerable financial stakes involved, and the heightened vigilance of tax authorities during audits, specialized legal and tax support is essential from the very outset of your project. Anticipate your transfer strategy now to safeguard the long-term future of your business assets.