Legal news

The fundamental importance of regulated agreements lies in their preventive role and protection of the social interest. These agreements make it possible to anticipate and prevent possible conflicts of interest, while guaranteeing the protection of the collective interest of the company.

Aware of this issue, the legislator has thus instituted a specific procedure, known as “regulated agreements” (“conventions réglementées”), allowing the corporate bodies to exercise rigorous control over these agreements. By definition, a regulated agreement is a contract concluded between an SAS (Simplified joint-stock company, “Société par actions simplifiée”) and its chairman, its other managers if applicable, or one of its shareholders with a fraction of the voting rights greater than 10% or, in the case of a shareholder company, the company controlling it within the meaning of Article L. 233-3, must be subject to the prior authorization of the board of directors.

The legal framework of the regulated agreement also applies when the contract is concluded between the SAS and one of the aforementioned persons, who is indirectly interested. So far, no definition has been given regarding the interested character mentioned in Article L225-38. However, the case law attempts to delimit this concept.

The specificity of regulated agreements is that they require a reasoned authorization from the board of directors, which must justify the interest of the agreement for the company. In this sense, neither the articles of association / by-laws (“statuts”) of the SAS nor the shareholders’ agreement may derogate from the rules of procedure applicable to regulated agreements.

Some conventions are said to be common and prohibited. Article L225-38 of the French Commercial Code provides that current agreements or agreements concluded under normal conditions are not subject to control by the board of directors and therefore do not require authorization. A routine operation is by definition an operation that is not exceptional, which must therefore be repeated at a certain frequency (Cass Com 11 March 2003 n°01-01-290: JurisData n° 2003-018566 Bull). Under Article L225-43 of the French Commercial Code, certain agreements are also directly prohibited. In particular, loans from the company and for the benefit of the chairman or a company manager (“dirigeant”). Consequently, the above-mentioned agreements are null and void and thus engage the civil or even criminal liability of the director who entered into them.

Regarding the control mechanism for regulated agreements, according to Article L. 225-40 of the French Commercial Code, the person directly or indirectly interested is required to inform the Board as soon as he or she becomes aware of an agreement to which Article L. 225-38 is applicable. It may not take part in the deliberations or the vote on the authorisation requested. Thus, in accordance with Article L.227-10 of the French Commercial Code, it is the responsibility of the statutory auditor to present to the partners a report on the agreement concluded between the director and the company. In SAS companies that have not appointed an auditor, it is up to the chairman to present this report.

Then, as specified in Article L225-41 of the French Commercial Code, the partners are free to approve or not the agreement. However, in both cases, the agreement will continue to have effect, but the person concerned will be liable in the event of damage caused to society.

Finally, Article 225-42 of the French Commercial Code refers to the nullity of agreements entered into without the prior authorization of the board of directors if they have had harmful consequences for the company. However, it is settled case law that this is a relative nullity. Indeed, the absence of automatic nullity remains as long as the nullity is not prosecuted is announced (Cass com 3 May 2000 JurisData n°2000-001913).

Nicolas BRAHIN Avocat
Master’s Degree in Banking and Financial Law / Université Panthéon-Sorbonne
Cabinet BRAHIN Avocats
Advokatfirma i NICE, Lawyers in NICE
Mob: 00 33 6 63 51 47 70
Email : nicolas.brahin@brahin-avocats.com
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
www.brahin-avocats.com

As of June 30th 2024 the MiCA EU Regulation 2023/1114 has entered in force in the matter of stablecoins (ARTs and EMTs) governed by its Title III and Title IV (Articles from 16 to 47 and from 48 to 58, respectively).

The MiCA Regulation adds the third category as well – “Other cryptoassets”, that are the final, miscellaneous category, where we find all the crypto-assets that don’t fit into the other two categories, such as Bitcoin, Ethereum and all cryptocurrencies whose value depends on nothing other than their own market price. Their regulation is yet to enter in force.

MiCA does not cover certain areas such as NFTs (except where they meet the criteria of financial instruments), DeFi services or more recent instruments such as the borrowing/lending of crypto-assets or staking¹. The European Commission has been mandated to study these issues and publish a report by December 2024, accompanied, if necessary, by a legislative proposal for an extension of the Regulation in accordance with its article 142.

The present article will assess the uneven base regime imposed by the MiCA regulation on stablecoins (I) and the additional requirements burdening the ARTs and EMTs, with an additional focus on “significant” crypto-assets (II), as well as introduce the base regime imposed on service providers that will enter in force by the end of the year 2024 (III).

Base regime imposed by MiCA

The MiCA Regulation creates a base regulatory regime mandatory for all issuers of the crypto-assets of any type. The main dispositions are yet to enter in force, however they are already fully applicable to the stablecoin issuers.

The primary obligation is to be incorporated as a legal entity in the publish a White Paper document on the issued crypto-assets and notify on its publication the competent regulatory authority. The Paper in question must describe the following:

– The company’s crypto-project and its main participants ;

– The blockchain mechanism used (proof of wok or proof of stake);

– The terms of the public offering;

– The key risks associated with the project and the crypto-assets;

– The rights and obligations attached to the crypto-assets.

The White Paper for obvious reasons is subjected to the transparency obligations, to non-compliance with which the issuer will be held liable in addition with other civil liabilities that exist under the national legislation. The authority may require to amend the White Paper, but there is no requirement of approval of the White Paper prior to the issue of the crypto-asset.

Issuers of ARTs and EMTs could not grant interest in any relation to the tokens, nor for providing related services, nor any renumerations or benefits related to the holding time of the ARTs or EMTs, including the services of receiving and transmitting orders on behalf of clients as well as the execution of orders on behalf of clients.

Finally, due to the transitory period imposed on the MiCA Regulation till 2026, the issuers must also consider other European (like Regulation DORA and national regulatory frameworks.

Regarding French regulatory framework, the AMF authority has issued a publication in 12th June 2023, confirmed on the 21st of June 2024, stating that the current national framework will be replaced on the 30th of December 2024 (for stablecoins on the 30th June 2024) regarding:

– Public offering and authorisation of cryptocurrencies trading and issue;

– Provision of the crypto-asset services by the service provides;

– Prevention of market abuse by the crypto-asset services.

Starting from 30th December, the European PSANs, under reserve of the transitory period established until 2026, won’t be able to exercise their services without an AMF approval, which will consequently become mandatory. To be covered by the transitory period, the PSAN must, by the 30th of December 2024, receive simple registration (“enregistrement simple”), reinforced one (“enregistrement renforcé”), or an optional AMF approval.

For the PSAN under the scope of the transitory period, such obligation will become mandatory on the 30th of June 2026, but their services during the transitory period must be restricted solely to the French public. Afterwards, the companies must receive an official MiCA approval to continue offering their services, even solely to the French public.*

Additional requirements on stablecoins imposed by MiCA

In line with the Considerations 8 and 9, the MiCA provides definitions for Electronic Money Tokens² (EMT) and Asset-referenced Tokens ³ (ART), so-called “stablecoins”.
EMTs are officially recognized as electronic money, the offering of which must be notified 40 days prior to the date of offering and could be redeemed at any moment on its monetary value.
It is important to underline that, under MiCA’s regulatory framework, the terms “stablecoin” and “Asset-backed Token (ABT)” will have no legal meaning in the EU as they fall under different regulatory frameworks.
The MiCA Regulation imposes additional requirements for the stablecoin issuers willing to exercise their commercial activity in the EU.
EMTs are issued at their face value (e.g.: 1 EMT = 1 EUR), in exchange for cash. What’s more, since EMTs are treated as electronic money, they represent a claim on the issuer, and can be redeemed free of charge for euros.
The Regulation has adopted a significantly more cautious approach towards the ART in comparison with EMT due to ART’s more volatile nature.

A. On the issuers of the ARTs

White paper:

White paper must contain the following information:

(a) issuer of the ART;

(b) the nature of the ART, associated rights and obligations, underlying technology;

(c) the contents of the public offering or its admission to trading;

(d) the associated risks and potential adverse impacts on “the climate and other environmental-related impacts of the mechanism used to the issuer of the e-money token,

(e) on the reserve of assets.

The White paper must also contain a statement from the issuer on its compliance with the MiCA Regulation, even though it is yet to fully enter into force, and a summary. The White paper must also include following statements addressed to the public:

1. The token may lose its value in part or in full;
2. The token may not always be transferable;
3. The token may not be liquid;
4. The token is not covered by investor compensation scheme under Directive 97/9/EC;
5. The token is not covered by deposit guarantee scheme under Directive 2014/49/EU.

Reserve of assets:

The issuers of the ARTs are legally obligated to constitute and maintain a certain reserve of assets distinct from issuer’s estate and from the other reserves constituted for other tokens.

The reserve must be proportional with the issuance and redemption of the tokens and must entail a stabilization mechanism for the ARTs, as well as a recovery plan.

The reserve asset could still be invested, but only in highly liquid financial instruments, or be held as a deposit with credit institutions.

The MiCA Regulation implies creation of the custody policy for the reserve of assets.

Own funds requirement is imposed on all issuers of the ARTs equal to at least the highest of the following options:

– -350 000 EUR, or

– 2% of the average (by end of calendar year) amount of the reserve assets, or

– Quarter of the fixed overheads of the preceding year.

Location and licensing:

To offer ARTs to the public in the EU or be admitted to trading on a crypto-platform, an issuer of ARTs must be established and authorized (licensed) in the European Union.

Reporting obligation:

Apart from significant tokens, for each ART with an issue value higher than 100 000 000 EUR, the issuer must report on a quarterly basis:

– Number of holders;

– Value of the ART and the size of the reserve;

– Average number of daily transactions⁴ and their average aggregate value during the quarter;

– The estimate of the average number of daily transactions and their average aggregate value associated with its usage in a single currency area.

The reporting obligation could be extended for the tokens below the stated value.

Complaint-handling procedures must be stablished by the issuer to cater the complaints of the holders, free of charge and in timely manner

Exemptions:

The regulatory regime on the ARTs provides certain partial exemptions depending on the type of offer (e.g., to qualified investors) or if the issuer is already regulated (e.g., as an EU credit institution).

In case of the offer to qualified investors there’s no necessary authorization to make a public offering, nor any restrictions imposed on the personality of the issuer under the Article 16 of the Regulation.

In case of an EU credit institution, it is automatically considered as competent, hence no authorization is required, but all the notification obligations still apply (issue of White Paper, notification within 90 days before the issue instead of 40).

Restriction on the issuance:

The issuer must stop issuing his ART if: the ART’s estimated quarterly average number is higher than a million transactions and daily average aggregate value of the transactions as a means of exchange within a single currency area is higher than 200 000 000 EUR.

Alternatively, the issuer must propose a plan to ensure that those markers are kept below the imposed limits, that could be modified by a competent authority.

If there are several issuers for the same ART, their market data is cumulative. The issue could be resumed only if the competent authority is presented with the evidence that the markers are kept below the imposed limits.

Transitory period and existing companies:

Finally, it is important to mention that the issuers of ARTs other than credit institutions that issued them in accordance with applicable law before 30th June 2024, may continue to do so until they are granted or refused an authorization pursuant to Article 21 of the MiCA Regulation, if they have applied for authorization before 30 July 2024.

Credit institutions that issued ARTs in accordance with applicable law before 30th June 2024, may continue to do so until their White Paper has been approved or has failed to be approved pursuant to Article 17 of the MiCA Regulation if they have notified their competent authority before 30th July 2024.

B. On the issuers of the EMTs

White paper:

White paper must contain the following information:

(a) issuer of the e-money token;

(b) the nature of the e-money token, associated rights and obligations, underlying technology;

(c) the contents of the public offering;

(d) the associated risks and potential adverse impacts on “the climate and other environmental-related impacts of the mechanism used to the issuer of the e-money token.

The White paper must also include two clear warnings addressed to the public:

1. The token is not covered by investor compensation scheme under Directive 97/9/EC;
2. The token is not covered by deposit guarantee scheme under Directive 2014/49/EU.

The White paper must also contain a statement from the issuer on its compliance with the MiCA Regulation, even though it is yet to fully enter into force, and a summary.

Permitted issuers:

The issuance of EMTs is only permitted for EU credit institutions and for e-money issuers already recognized as such and authorised to do so.

Token and investment requirements:

As stated before, the EMTs must amount to a claim on the issuer and be redeemable at par. In addition, the funds received by issuers of EMTs in exchange for EMTs, should they be invested, are restricted in the investement only to the assets denominated in the same currency as that referenced by the EMT.

C. On the criteria of “siginificance” and additional restrictions

MiCA regulation imposes additional restrictions and obligations on the issuers of the ARTs and the EMTs deemed as “significant”.

To be classified as significant, an ART or EMT of any kind must meet at least three of these requirements, as stated in the Article 43 of the Regulation:
Have more than 10 million holders;

– Market capitalization or size of reserve assets higher than 5 000 000 000 EUR;

– Average number of transactions per day for a defined period is higher than 2.5 million and their average aggregate value is higher than 500 000 000 EUR;

– Issuer is a provider of core platform services designated as a gatekeeper in accordance with the Digital Markets Regulation (EU Regulation 2022/195);

– Significance of activities of the issuer on an international scale, including use of the ART or EMT for payments and remittances;

– Interconnectedness of the ART or EMT or its issuer with the financial system;

– The same issuer issues at least one additional ART or EMT and provides at least one crypto-asset service.

The classification is to be annually assessed by the EBA based on described reporting. Any issuer may also voluntarily request that their ART or EMT will be classified as significant if he considers that the criteria are met.

The additional obligations are imposed in the matters of liquidity maintenance, recovery and redemption planning :

– Obligation to adopt remuneration policies for risk managment;

– Obligation to ensure that the ART and EMT could be held in custody by different crypto-asset providers authorised to do so on behalf of clients;

– Obligation to monitor the liquidity needs to meet redemption requests by establishing a relevant policy to ensure resilience of liquidity, even under stress;

– Obligation to conduct liquidy stress testing on all the proposed tokens.

The respect of the obligations in question must be ensured in accordance with the technical standards and guidelines issued by the EBA, ESMA and ECB, with first package issued on the 13th of June 2024 on the own funds, liquidity requirements, and recovery plans⁶, and the second one on the 4th of July 2024 on resilience, public disclosure and documentary drafting standards⁷.

Competent authorities will also be granted MiFID-like product intervention powers and a separate empowerment to require an issuer of an ART widely used as a medium of exchange, or of an EMT denominated in a non-EU currency, to introduce a minimum denomination or to limit the amount issued in order to decrease the use of such tokens.

In anticipation of CASP status

Under the MiCA Regulation, the crypto-asset service provider (CASP) is defined as a “legal person or other undertaking whose occupation or business is the provision of one or more crypto-asset services to clients on a professional basis, and that is allowed to provide crypto-asset services in accordance with Article 59”.

The Article 59 of the MiCAR treats the matter of authorization by defining to two closed categories of the CASPs :

1. A legal person or other undertaking that has been specifically authorized as CASP by fulfilling the criteria of Articles 62 and 63 of the MiCAR;

2. A credit institution, central central securities depository, investment firm, market operator, electronic money institution, UCITS management company, or an alternative investment fund manager that is allowed to provide crypto-asset services in accordance with the Article 60 (on prior notification for the related activity).

The Article 62 defines the criteria and the application process to obtain the CASP authorization, most notably stating as requirements:

– Prudential monetary safeguards ;

– Proof of competence and good reputation for members of the management (notably an absence of criminal records and penalties related to anti-money laundering, counter-terrorist financing, fraud and professional liabilities);

– Description of reserve assets mechanisms and complaint-handling;

– Operating rules;

Etc.

Like the PSAN regime in France, this new status will establish a coherent mechanism for licensing and monitoring crypto-asset service providers within the European Union. Thus, the provision of the services listed in §2 of Article 62 of MiCA is conditional on obtaining compulsory CASP approval from the competent authority, which in France is the AMF.

CASP status authorizes service providers to offer their services within the European Union, in return for regulatory obligations.

The CASP status will enter in force with the remaining non-active provisions of the MiCA Regulation by the 30th of December 2024 If an entity legally providing crypto-asset services before 30th of December 2024 has not been authorised as a CASP by the end of the transition period applicable in the relevant Member State (including AMF in France), they must cease providing crypto-asset services before an authorisation as a CASP is issued under MiCA.

Therefore, an entity that has already been providing crypto-asset services before 30th of December 2024 and wishing to continue to do so under MiCA should apply for authorisation as a CASP as early as possible in order to ensure that the competent authorities have the time to assess their applications without disrupting their services.

staking¹ – process by which holders of certain cryptocurrencies immobilize a specific amount of their funds as a “pledge” in a wallet to participate in the operation of a blockchain network.

Electronic Money Tokens²– type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency (Paragraphe 1(7) of the Article 3 of Regulation 2023/1114);

Asset-referenced Tokens³– type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies (Paragraphe 1(6) of the Article 3 of Regulation 2023/1114)

Transactions⁴ (here) – any change of the natural or legal person entitled to the asset-referenced token as a result of the transfer of the asset-referenced token from one distributed ledger address or account to another;

The qualified investors⁵ (here) : 1) Entities which are required to be authorised or regulated to operate in the financial markets, such as credit institutions, investment funds, insurance companies, etc.; 2) National and regional governments and other bodies managing public debt, international institutions ; 3) other instituional investors, etc.

⁶ https://www.eba.europa.eu/publications-and-media/press-releases/eba-publishes-regulatory-products-under-markets-crypto-assets-regulation

⁷https://www.esma.europa.eu/press-news/esma-news/new-mica-rules-increase-transparency-retail-investors

Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Nicolas Brahin
Avocat
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Nicolas.brahin@brahin-avocats.com
www.brahin-avocats.com

Which charges are liable to a deduction for the Land Income Tax (hereinafter LIT)? When is the deficit considered for the income tax? Are those charges considered after the threshold value of 10.700 EUR?

The following reasoning is based on the article 31 of the Code Général des Impots (Tax Code).

Charges liable for a deduction.

The fees and charges considered for the deduction:

• Reparation and maintaining or improvement.
• The fees required from the renter but paid by the owner.
• Provisions for the co-ownership fees.
• Management fees and loan interest.
• This list is not exhaustive.

Deduction of the deficit and the relationship with the income tax.

If the difference between the benefits and the charges shows a deficit then it is deductible from the income tax if the landowner rent it for at least 3 years (ending December, the 31st).

However, a threshold set at 10.700 EUR is the maximum allowed for a deduction, but this threshold is increased to 21.400 EUR when the works done is related to energic efficiency.

Over this sum, the deficit can be deductible the next financial years and for 10 years after that. If the income tax is not high enough to overtake the deficit, then the deficit can be deductible for 6 years.

Investment in crypto-assets has grown significantly over the past few years, with many companies now holding them on their balance sheets and a large number of innovative companies being established in this sector. Here we look at the tax treatment of these digital assets when owned by businesses. The 2019 Finance Law has created for the first time a tax regime for individuals (and partnerships referred to in Article 8 et seq. of the General Tax Code) specific to occasional disposals of digital assets, partly inspired by the regime applicable to gains on securities. It sets an overall tax rate of 30%, equivalent to the flat tax, i.e. a rate of 12.8%, plus social security deductions of 17.2%. The specificity of this particular regime is that it introduces, in particular, a tax deferral in the case of an exchange of digital assets without an equalisation payment, in order to take into account the large number of transactions associated with the sector.

For legal persons, there is no specific regime for gains or losses from holding digital assets. However, the Parliament raised the issue during the discussions on the 2022 budget, where several amendments were tabled. Proposals aimed at harmonising the tax treatment of companies with that of individuals were rejected, as these amendments could have led to a de facto exemption for companies that choose not to convert their digital assets into euros. All these amendments were rejected by the government and withdrawn. The result is that, unlike individuals, there is currently no specific tax regime for companies subject to corporate tax.

Therefore, in the absence of rules deviating from the accounting principles, subscription to and possession of digital assets are recognised and taxed in accordance with the accounting rules applicable to each category of that asset. In the absence of a tax deferral, any exchange of one digital asset for another digital asset results in the recognition of a taxable capital gain or loss. As a result, the development of digital assets is hampered by a tax system that results in the recognition of a gain or loss on each exchange transaction.

Taxation of digital asset issuance

An Initial Coin Offering (hereinafter “ICO”) is a public offering to raise funds for the financing and development of an issuer’s project. It gives rise to the issuance of digital tokens, which are given to the investor in exchange for a sum of money or crypto money. ICOs are carried out using blockchain technology, so there is no middleman between the subscribers and the token issuer. An ICO offers significant advantages, especially for the issuer of the project. ICOs can be completed quickly and the lack of barriers on the internet means that a wide audience of investors can be reached. Furthermore, it allows project leaders to raise funds without opening up their capital, which in turn allows them to raise funds without dilution.

The bill on the growth and transformation of businesses, known as the “Pact”, has created a framework for these fundraising operations in light of their growing importance (6.8 billion raised in 2017, 21 billion in 2018) and has made France a pioneer in this area. With regard to the issuance and exchange of tokens, the supply of goods and services for consideration by a taxable person acting as such is subject to VAT.

A transaction is subject to VAT if there is a direct link between the service provided or good acquired and the consideration received, i.e. if a transaction provides the customer with an individualised benefit on the one hand, and if the price received in return is related to the benefit obtained on the other. Individual subscribers are taxed either at the flat rate of 30% with deferred taxation if they act as individuals, or in the industrial and commercial profit category if they act as professionals.

Taxation of digital assets

Value added tax (VAT)

A company that has acquired digital assets whose issuance has been subject to VAT is entitled to deduct the VAT in accordance with the general legal rules, provided it is in possession of a document showing the deductible VAT (invoice, etc.).
If they have been treated as multi-purpose vouchers, the right to deduct VAT can of course only be exercised when the VAT is payable by the issuer.
If they fall under the rules for single-use vouchers, VAT should be immediately deductible under the general legal provisions. Without prejudice to the ordinary law rules on territoriality, resale should be taxable.

Corporate income tax

Taxation of holdings of financial instruments (“secf/r/tytokens”)

For accounting purposes, the French general chart of accounts distinguishes between three different types of token:

– tokens with characteristics of financial securities, savings bonds or financial contracts, or “securities tokens;
– Tokens recognised as intangible assets'”‘ ;
– Tokens recognised as current assets: these are tokens that do not have the characteristics of financial securities, financial contracts or cash coupons, with no intention to use the related services or deliver the related goods.

The concept of digital assets was defined in Article L. 54-10-1 of the French Monetary and Financial Code when the PACTE law was adopted in 2019. According to this article, digital assets comparable to the instruments mentioned in Article L. 21J-1 of the Monetary and Financial Code and the savings bonds mentioned in Article L. 223-1 of the same code fulfil the characteristics of financial instruments. In practice, these are mainly shares, debt securities, units or shares in collective investment undertakings, financial futures instruments and savings bonds.

For accounting purposes, the company’s digital assets must be recognised in accordance with the accounting rules applicable to the type of financial instrument to which they are linked. For tax purposes, as mentioned above, there are no special rules, so the accounting and tax treatment is identical. However, if digital assets give rise to the payment of ‘rewards’ that are similar to interest, the latter must be recognised in the income statement for the financial year in which they accrue. For accounting purposes, the company’s digital assets must be recognised in accordance with the accounting rules applicable to the type of financial instrument to which they are linked.

Taxation when holding non-financial digital assets (“utility tokens”)

The accounting and taxation of these digital assets will depend on the intention of the entity acquiring them. If the company intends to use the services or goods associated with the acquired digital assets beyond the subscription period, they must be recognised as “intangible fixed assets” in accordance with Article 619-1l of the General Tax Code.

Otherwise, they will be recognised in current assets as cash instruments. Digital assets recognised as intangible assets – Normal accounting rules will apply, so digital assets must be amortised in accordance with the applicable rules, i.e. over their actual and foreseeable useful life. It should be noted that if the expected use of the related services or goods no longer exists, the digital assets recognised as intangible assets can be transferred to cash instruments.

The transfer must be made at the net book value. However, any reverse transfer of digital assets recorded in a cash account to an intangible asset account is prohibited. In accordance with the traditional rules, an impairment test must be performed in case of impairment, i.e. when the market value of the digital assets turns out to be less than their net book value. When a company wants to remove its digital assets from the balance sheet, it can do so by voluntary redemption, which would involve cancelling the net book value of the token on the transaction date, but it is more common to sell these digital assets to a third party on the secondary market. Again, the accounting and tax rules are identical. The difference between the sale price and the net book value will constitute a capital loss or capital gain that is taxable under ordinary law. Digital assets are recognised as cash instruments – In all other cases, digital assets will be classified in account SZZ “Tokens held” and the unrealised gain or loss will be recognised as an asset or liability.

In case of sale or withdrawal, capital gains or losses are calculated using the FIFO (first-in, first-out) or WAC (weighted average cost of acquisition) method. Here too, the general legal rules apply, both from an accounting and a tax point of view. The current digital asset holding regime poses unsustainable constraints for businesses and accountants, especially as they perform a large number of exchanges between digital assets. The number of transactions involved and the volatility of the tokens make this a complex exercise.

During the discussions on the 2022 Finance Act, an amendment was proposed to defer the time of taxation of profit or loss to the time of the transaction that enriches the business, i.e. the sale in exchange for currency or other goods or services. The purpose of this amendment was to bring the regime applicable to companies in line with that adopted for individuals in the Finance Act 2019.

However, to allow the state to benefit from budget revenues in a post-covid context, a three-year tax deferral period was introduced, at the end of which untaxed profits would be reintegrated into taxable income. However, this amendment was not adopted. As a result, any exchange of a digital asset for another digital asset would currently result in a taxable capital gain or capital loss in the absence of a tax deferral.

The French tax system is still under construction. As the current rules impose certain constraints on companies carrying out a large number of exchanges between digital assets, particularly with regard to the calculation of the taxable capital gain, it is now more than desirable for the legislator to intervene to remedy this situation so that a framework adapted to the specific nature of this new category of assets can be adopted.

Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Camilla Nissen MICHELIS
Assistante – Traductrice
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Camilla.nissen.michelis@brahin-avocats.com
www.brahin-avocats.com

On January 29, 2024, the National assembly (“Assemblée Nationale”) passed the proposed “Airbnb” law on first reading with amendments.
This “Airbnb” law aims to put furnished tourist accommodation back on the long-term rental market, by modifying the taxation of tourist rentals with a drastic reduced tax allowance, down from 71% or 50% depending on the situation to just 30%.
New obligations have also been imposed on owners wishing to change the use of their property to furnished tourist accommodation, requiring them to provide a sufficiently good energy performance diagnosis, to prevent over-energy-consuming properties from ending up on vacation rental sites. Mayors will also have the power to reduce the maximum rental period for principal residences to 90 days a year, compared with 120 days today .

Modification of the taxation of tourist rentals

The proposed law modifies the highly advantageous “micro BIC” tax regime for tourist rentals:

• The tax allowance for classified furnished tourist accommodation (quality label, ranging from 1 to 5 stars) is lowered to 30%, subject to an annual rental income ceiling of 30,000 euros (compared with 71% and a ceiling of 188,700 euros
  today) ;
• In rural areas and winter sports resorts, an additional allowance of 41% is available, provided that sales do not exceed 50,000 euros ;
• The tax allowance for unclassified furnished tourist accommodation will also rise to 30%, with an annual rental income ceiling of 15,000 euros (compared with 50% and a ceiling of 77,700 euros today).

In addition, the double deduction of depreciation for non-professional furnished tourist accommodation (LMNP) (“Location meublée non-professionel”) as part of the actual tax regime has been abolished.

New obligations for furnished tourist accommodation

The text requires owners who want to change the use of their property to a furnished tourist accommodation:

• For a definitive change, the presentation of an energy performance diagnosis (“Diagnostic de performance énergétique”) (DPE) classified between levels A and D ;
• For a temporary change, the mandatory energy renovation schedule for housing set by the 2021 Climate and Resilience law (“Loi Climat et resilience de 2021”). As in the case of conventional housing, G-rated furnished tourist accommodation will be banned from rental on January 1, 2025, F-rated on January 1, 2028 and E-rated on January 1, 2034.

Principal residences and overseas territories are not affected

These new rules will prevent long-term rentals from switching to short-term rentals to get around the ban of the renting of over-energy-consuming properties. It is planned that the stock of premises that have already obtained final authorization will be brought into compliance within five years.
A new obligation will also apply to condominiums: owners and tenants will have to inform the syndic of any change of use, who will have to put it on the agenda for the next general meeting.

Extended powers for mayors

The proposed law gives mayors broader powers to better regulate premises used for tourism :

• The town hall registration procedure is extended to all prior declarations for the rental of furnished tourist accommodation (“Déclaration préalable de mise en location d’un meublé de tourisme”), regardless of the municipality, and whether or not it is a principal residence. Although furnished tourist accommodation already have to be declared to the town hall, they are not always registered, which means that supporting documents can be requested. The widespread use of a registration number, after declaration to a national teleservice, is considered essential to improve mayors’ knowledge of the rental tourist (“parc locatif touristique”), and a necessary condition for better regulation. The system will be applicable by early 2026 at the latest ;
• Mayors will be able to impose two new administrative fines of up to 5,000 euros for failure to register a furnished tourist accommodation, and up to 15,000 euros for use of a false registration number ;
  All municipality will be able to lower the maximum number of days a principal residence can be rented out for tourism purposes, from 120 days to 90 days per
  year ;
• Municipality with change-of-use regulations will be able to extend the change-of-use regime to all premises not used for residential purposes. The aim is to regulate the practices of investors who are increasingly turning to the conversion of offices into furnished tourist accommodation, since the introduction in 2021 of an authorization for the conversion of commercial premises into tourist accommodation.

The text also extends to all communes the option of applying change-of-use regulations, without authorization from the prefect. It also opens up the possibility for municipality to define quotas for change-of-use authorizations, and to delimit, in their local urban plan (PLU) (“Plan Local d’Urbanisme”), sectors where, for any new construction, only principal residences will be authorized.

This option will be open to some 9,300 municipality : those with more than 20% secondary residence, and those where the annual tax on vacant propriety (“Taxe annuelle sur les logements vacants”) is applicable and where an increase in residence tax on second homes (Taxe d’habitation sur les residences secondaires”) is permitted. The Senate must now examine the proposed law.

Note on the special tax regime for expatriate employees and the conditions under which they are eligible for this special regime with other taxpayers who select domicile in France.

Taxation of expatriate employees – Impatriates employee

Article 155 B of the French General Tax Code (GTC) provides the possibility for expatriate employees in France to benefit from a special tax regime. The GTC provides number of conditions for the application of the “impatriation” scheme.

Scope of the General Tax Code – The conditions

• The status of the taxpayers

In application of article 80 ter of the GTC, there are a statute requirement to benefit of the impatriate regime :

– For public limited company Chief Executive Officer, the directors or members of the Supervisory Board, the members of the Management Board and the provisional managing director.
– For minority managers of limited liability companies.
– For all other companies or establishments subject to corporation tax, managers subject to the employee tax regime.

• Executive expatriation

The GTC requires, for those taxpayers to be called from abroad to take up employment with a company established in France for a limited period (in a maximum of 8 years). The expatriation may not exceed 8 years, in which the expatriate is considered as a resident in France for tax purposes. To be eligible, the expatriate must not have been domiciled in France for tax purposes in the 5 years prior to expatriation.

Consequences of impatriate employee status

•  Impatriate workers taxation

Impatriate workers benefit from a special tax regime to the extent that they are subject to tax on the remuneration received directly in connection with their new position carried out in France.
Nevertheless, expatriates can still opt out for a taxation equal to 30 % of their remuneration received in France. Expatriates are granted by a continuity of this scheme, even though they are replaced for a new function in the same company, but also if they are replaced in a new company detained by the same group, if the new company is located on French territory.

Expatriates can also benefit, in case of a work trip in a foreign country, which implied a remuneration, only if this trip was directly and exclusively bound to the French employer interest. Expatriates will also be able to benefit from a 50 % reduction in the amount of income from transferable securities, income from patents or copyright, and gains from the sale of securities or company rights, paid from outside France or by a person residing in a territory bounded with France by a tax treaty including an administrative assistance clause to fight tax fraud.

According to the highest administrative court decision, the Conseil d’Etat, of the 21st of October 2020 (no. 444799), the exoneration of transferable capital provided by article 155 B of GTC point II, is not linked to an actual remuneration for the activity in France.

There is no taxation for any expatriation bonuses. On the 27th Septembre 2023, the French National Assembly rendered a Report establishing that the situation of impatriate employees’ property wealth taxation in France was limited to assets located in France.

• Advantages of the expatriate scheme in France

The expatriate employee in France, if he is seconded for a significant period abroad, will not be able to hope for an exemption from the remuneration he will have received abroad, under the yoke of article 81 A of the GCT, it will only be subject to the exemption provided for by article 155 B of the GCT.

A decision of the Conseil d’Etat, dated on March 26, 2003 (no. 226400), establishes the maximum duration of the expatriation at 24 months, beyond this period, the exemption of income obtained abroad provided for by article 155 B of the GCT is no longer guaranteed for the taxpayer.

The expatriated taxpayer is granted by an extended limited period than taxpayers submitted to article 81 A of the GCT. Which are subject to assessment by the administrative courts, which determine a reasonable duration on a case-by-case basis (EX: Conseil d’Etat decision of March 14, 2011, no. 318129).

Taxation of taxpayers electing domicile in France

The main principle in Taxation law is territoriality. In France, this principle is provided by article 4 of the GTC:

“Persons whose tax domicile is in France are liable to income tax on all their income. Those whose tax domicile is outside France are liable for this tax solely on the basis of their French-source income.”

Conditions for tax liability in France

Prior to be subject to taxation in France, foreign taxpayers must have close or at least significant ties with France.

According to article 4 B of the GTC, if foreign taxpayers want to be subject of French tax law, they must have their main home or place of residence in France, be employed or self- employed in France, or have their center of economic interests in France.

A Conseil d’Etat’s ruling of the 15th of June 2007 (no. 284449) stated that foreign cannot opt for French taxation if there are no ties with France.

Consequences for taxpayers

If we refer to article 4 B paragraph 1 of the GTC, it can be determined that taxpayers who opted for tax domicile in France is taxable on his universal income, even foreign income is subject to an allowance from French tax.

In this case, taxpayers will be taxed in accordance with the agreements entered by France and the country of the source of the income.
Taxpayers will be subject to the international agreements concluded with France and the countries of the source of the income.

In the absence of agreements, taxpayers will be subject to double taxation in the country of source, which will lead to a tax credit against French tax authorities, depending on the amount of this tax, if taxpayers are subject to a higher tax than what is provided in French law.
Otherwise, taxpayers will have to pay the difference between the tax at source and the French tax in France.

Med venlig hilsen / Kind regards
Cabinet Nicolas BRAHIN
Advokatfirma i NICE, Lawyers in NICE
Camilla Nissen MICHELIS
Assistante – Traductrice
1, Rue Louis Gassin – 06300 NICE (FRANCE)
Tel : +33 493 830 876 / Fax : +33 493 181 437
Camilla.nissen.michelis@brahin-avocats.com
www.brahin-avocats.com