Arsene Taxand - Real Estate

The French 3% tax is modified but still alive

The French Parliament adopted last night an amendment to the Amended Finance Bill for 2007 aiming at reforming the French 3% annual tax.

As we announced in our tax alert dated November 13, the 3% annual tax was to be modified following a decision of the ECJ where the 3% tax was deemed as partially incompatible with the free movement of capital.

The main changes brought to the 3% tax regime are the following:

- A clearly specified field of application specifically aimed at trusts (fiducies or comparable institutions).
- Application of an exemption threshold in two cases:
· Companies owning directly or indirectly an interest which value is inferior to € 100,000 or to 5% of the fair market value of the building are now exempt from the 3% tax.
· The declaration duty of companies falling into the scope of the tax does not concern shareholders holding a maximum 1% interest in their share capital. This measure is good news for investment funds.

- Direct extension of the exemption to French SPPICAV and foreign equivalent and to companies directly and indirectly fully owned by a listed company.

- Identical treatment for French companies and legal entities with their headquarters in an EU Member State with regard to the declaration formalities for exemption.

These new provisions will come into force as from January 1st, 2008.