Arsene Taxand - Real Estate

“SIIC 4” on the way

The 2006 finance bill is currently under discussion before the French Senate. Senator Marini has just presented a draft amendment containing several provisions on the legislation applicable to SIIC companies (and also for some of them to new French real estate SICAVs, “SPPICAV”) to the Finance commission of the Senate. This draft amendment should be discussed next week and voted by both assembles of the Parliament.

The draft provisions submitted to the Senate contain several new measures of a significant impact, which may raise structuring issues for the foreign shareholders of French SIIC companies, namely:

- Introduction of a majority shareholding threshold below 60%. This threshold would be applicable as of January 1st 2009. This condition would have to be complied with on a continuous basis.

- Introduction of a floating requirement of 15%, where each shareholder should own less than 2% of the equity and voting rights of the SIIC. This condition should be fulfilled on the first day of the year for which the company is electing for the SIIC regime.

- Introduction of a withholding of 20% applicable to distributions of dividends by a SIIC to any company that would be exempted or subject to a significantly limited income tax rate (equal or below 11% of effective tax rate). However, this provision would not be applicable to SIIC or SPPICAV companies receiving dividends from another SIIC company (so called “SIIC of SIIC”) and also to companies submitted to a 100% obligation duty on dividends received from the SIIC, subject to the condition that no shareholder holding above 10% in the equity of this holding company be exempted from income tax on dividends. Any withholding tax due on the dividend may be set off against such 20% withholding. Such provision would be applicable for distributions carried out as of July 1st, 2007.

These new provisions, and in particular the last one, may hit significantly foreign shareholders that are exempted from French withholding tax according to the double tax treaty benefits and which, in their State of residence, can benefit from a participation exemption regime applicable to the dividends received from SIIC company. This may be the case for major Spanish controlling French SIIC companies, which have taken over some of the major SIIC companies during the last 3 years (Gécina, Foncière Lyonnaise as an example).

Also, despite many rumours, the amendment contains no provision on the extension of the so-called “SIIC 3” legislation, which allows a tax cut of the capital gains tax rate by 50% down to 16.5% for real estate owners selling real estate to SIIC companies. This regime would not be extended above December 31, 2007.

Some new technical provisions are also provided regarding the definition of eligible assets and regarding the transfer of assets within SIIC companies.

The SIIC 4 provisions are now “under their way”. This untypical parliamentary process, where such major provisions are presented before the parliament under an amendment proposition from the French Senate was used for all the previous SIIC legislations and accepted by the government in place. As a consequence, we believe that this project should be very close to the final legislation applicable as of January 1st, 2007. We will keep you posted.


François Lugand