Key points
- A TUP allows a parent company that is the sole shareholder of its subsidiary to take over all of its assets and liabilities through dissolution without liquidation.
- All of the subsidiary’s assets, rights and debts are transferred automatically to the parent company.
- A TUP may fall under the preferential tax regime for mergers: unrealised capital gains are then not taxed at the time of the transaction, subject to conditions.
- To benefit from it, the absorbing company gives the undertakings provided for in Article 210 A of the French Tax Code (CGI) and attaches the capital gains tracking statement to its tax return.
- Failure to file this statement, or filing an inaccurate or incomplete one, is penalised by a fine equal to 5% of the sums omitted.
A universal transfer of assets and liabilities (Transmission Universelle de Patrimoine), often referred to by its acronym TUP, is a legal mechanism commonly used in corporate restructuring, in particular where the absorbing company holds 100% of its subsidiary’s share capital. This process has major tax consequences for all the entities involved. Understanding these effects is essential to anticipate obligations and optimise the overall tax burden.
How a TUP works and its legal implications
A universal transfer of assets and liabilities allows a parent company that is the sole shareholder of its subsidiary to take over the subsidiary’s assets and liabilities without liquidation (Article 1844-5 of the French Civil Code (in French)). In practice, all of the subsidiary’s assets, rights and debts are transferred to the parent company, which automatically succeeds it. Creditors may lodge an objection within thirty days of publication of the dissolution; the transfer only takes place at the end of that period or, where applicable, once the objections have been settled. This method of transfer offers the advantage of a dissolution without liquidation as well as great procedural efficiency.
A TUP therefore entails the complete disappearance of the subsidiary, all of whose property – assets and liabilities – passes to the parent company. This transaction raises many questions about accounting treatment and the tax impact of the automatic transfer of the assets and liabilities.
The main tax consequences of a TUP in France
A TUP gives rise to specific tax effects that differ significantly from those of an ordinary dissolution or other restructuring schemes. Where it falls within the scope of Article 210-0 A of the French Tax Code (Code général des impôts) (in French), it may benefit from the preferential tax regime for mergers provided for in Article 210 A of the same code. For support at every stage, you can turn to a business law firm that handles the legal and tax aspects of the transaction together.
The preferential regime is excluded where the principal objective, or one of the principal objectives, of the transaction is tax fraud or tax evasion. Unless proven otherwise during an audit by the tax authorities, this objective is presumed where the transaction is not carried out for valid commercial reasons, such as the restructuring or rationalisation of activities (Article 210-0 A, III, of the CGI).
What tax advantages are associated with a TUP?
Under the preferential tax regime for mergers, a TUP allows unrealised capital gains on the assets transferred not to be taxed at the time of the transaction. In return, the absorbing company undertakes in particular to take over the provisions, to add back the capital gains on depreciable assets and to retain the tax values of the items received (Article 210 A of the CGI (in French)). For financing a start-up, other tools exist, such as BSA-AIR, used to finance start-ups.
In addition, dissolution without liquidation avoids liquidation operations. As regards corporate income tax (impôt sur les sociétés, IS), the preferential regime provides temporary tax neutrality: taxation of the capital gains is deferred, not cancelled.
What filing obligations apply to the absorbing company?
To benefit from this advantageous tax regime, the absorbing company attaches to its tax return a statement tracking the capital gains whose taxation is deferred, and keeps a register of capital gains on non-depreciable assets (Article 54 septies of the CGI (in French)). The TUP decision and the transfer of assets and liabilities must be documented with the book and tax values of the items transferred.
Failure to file these documents, or filing inaccurate or incomplete ones, is penalised by a fine equal to 5% of the sums omitted (Article 1763 of the CGI (in French)). The preferential tax regime also requires the absorbing company to give and comply with the undertakings provided for in Article 210 A of the CGI.
Taxation, retroactivity and specific issues relating to the transfer of profits
Beyond the question of capital gains, a TUP involves specific treatment of the taxation of profits, tax losses carried forward and provisions recorded on the balance sheet of the dissolved company.
Under certain conditions, these items may benefit from a deferred or spread tax effect, which makes it all the more worthwhile to plan the transaction carefully and seek support from specialists in tax and employment law.
How are tax losses and provisions transferred?
The automatic transfer of tax rights and obligations does not automatically extend to tax losses not yet used. In a TUP under the preferential regime, their transfer to the absorbing company requires approval (agrément) (Article 209, II, of the CGI (in French)), unless an exemption applies where the cumulative amount transferred is below €200,000 and other conditions are met. Approval requires in particular a transaction that is economically justified, whose main motives are not tax-driven, and the continuation of the activity that generated the losses for at least three years. The existing provisions are taken over by the absorbing company as part of its undertakings.
This mechanism aims to preserve tax fairness and to prevent companies from using a TUP as a mere lever for abusive tax optimisation, without any real organisational justification.
What is the impact on corporate income tax and registration duties?
The impact on corporate income tax (IS) depends mainly on compliance with the preferential tax regime for mergers. If all the conditions are met, applying this regime avoids immediate taxation of the capital gains realised. As regards registration duties, deeds recording merger transactions involving only companies subject to IS are registered free of charge (Article 816 of the CGI (in French)): a TUP treated as a merger therefore, in principle, generates no additional cost for the absorbing company, thanks to the absence of registration duties on the overall transfer of assets and liabilities.
This point adds to the appeal of the TUP for groups wishing to rationalise their internal organisation, while reducing the total transfer duties normally payable in an ordinary sale.
Specific effects and practical arrangements of a TUP
Beyond the immediate tax aspect, a TUP also has structural effects for the absorbing company, at both asset and administrative level. You need to remain vigilant to ensure the continuity of contracts, the transfer of guarantees and the regularisation of bank commitments originally assumed by the dissolved subsidiary.
These transactions generally involve carrying out thorough prior due diligence in order to anticipate any later challenges and to make sure that the automatic transfer does not carry unresolved disputes or unforeseen liabilities.
- Simplified dissolution without liquidation
- Temporary tax neutrality if the conditions are met
- Transfer of tax rights and obligations, with losses requiring approval
- Transfer of tax losses carried forward subject to approval
- Free registration between companies subject to IS
- Need for precise monitoring to comply with the legal framework
Preferential regime, retroactivity, treatment of losses: every choice must be documented. Our tax lawyer makes the tax side of the TUP legally sound, working with our corporate lawyer on the formalities.
Key points on the tax consequences of a TUP: FAQ
Is the capital gains exemption always available in a TUP?
The term capital gains exemption is misleading: the preferential tax regime for mergers defers their taxation, subject to conditions. It is excluded if the principal objective, or one of the principal objectives, of the transaction is tax fraud or tax evasion; this objective is presumed in the absence of valid commercial reasons, such as the restructuring or rationalisation of activities. The absorbing company also gives the undertakings set out in Article 210 A of the CGI and attaches the capital gains tracking statement to its tax return; otherwise it incurs a fine of 5% of the sums omitted.
- Compliance with administrative formalities
- Evidence of a genuine economic interest
- Continuation of the loss-making activity for three years for the transfer of losses subject to approval
How does tax retroactivity work in a TUP?
From a legal standpoint, the transfer of assets and liabilities only takes place at the end of the thirty-day objection period open to creditors after publication of the dissolution, or once the objections have been settled (Article 1844-5 of the Civil Code). From that date, the profits, income and expenses accrue to the absorbing company. Tax retroactivity to an earlier date raises specific questions and must be analysed case by case before being adopted in the TUP. The accounting and tax entries must reflect this automatic transfer at the date adopted.
| Date of publication of the dissolution | Date of transfer of assets and liabilities (no retroactivity, no objection) |
|---|---|
| 15 June | End of the 30-day objection period |
| 30 September | End of the 30-day objection period |
What does the parent company gain from a dissolution without liquidation?
Dissolution without liquidation allows the parent company to receive all of the subsidiary’s assets and liabilities directly, without going through the complex stages of a liquidation procedure. This reduces costs, speeds up the reorganisation and avoids paying the registration duties linked to certain asset transfers. Full continuity of operations is thus maintained.
- Simpler management
- Free registration of the deed
- Fewer administrative formalities
Can the deferred or spread tax effect apply to all the items transferred?
The deferred or spread tax effect mainly concerns unrealised capital gains and provisions, under the undertakings of Article 210 A of the CGI. Existing losses follow a separate regime: their transfer requires approval, granted in particular if the activity that generated the losses has not undergone any significant change and is continued for at least three years without significant change. Otherwise, approval may be refused: continuity of activity then becomes a key issue.
- Unrealised capital gains covered
- Provisions transferred subject to conditions
- Limits if the activity changes
