Legal news

On foreign companies with real estate predominance

A company is considered to have a real estate predominance if the value of its real estate assets exceeds 50% of the value of all its assets.

Article 4 B of the French General Tax Code (Code Général des Impôts) provides that “the managers of companies whose headquarters are located in France and whose annual turnover exceeds 250 million euros are considered to have their tax domicile in France, unless they provide proof to the contrary. For companies that control other companies under the conditions defined in Article L. 233-16 of the French Commercial Code, turnover is understood to be the sum of their turnover and that of the companies they control.”

There are four pre-established criteria that emerge from this article :

• Nationality;
• Main profession;
• Main place of residence; 
• Economic interest.

On net property income

According to Article 28 of the French General Tax Code, net property income is equal to the difference between the amount of gross income and the total property charges.

That is :
Net property income = Gross rent − (Management fees + Loan interest + Maintenance work + Property tax).

On corporate tax (« Impôt sur les société » or referred to as « IS » below)

In 2024, the corporate tax rate is set at 25% for all companies regardless of their turnover. However, a reduced rate is still applicable for certain companies.
The reduced “IS” rate of 15% concerns SMEs :

• Whose turnover excluding tax is less than 10 million euros ;
• Whose capital is entirely paid out and held at least 75% by individuals (or by a company applying this criterion).

Since January 1, 2023, this reduced rate applies to the share of profits up to 42,500 euros. Beyond that, the profit is taxed at the normal “IS” rate, i.e. 25%.

Calculation of the balance of corporate tax payable :

a) Taxable base = accounting result + tax reinstatements – tax deductions – remaining deficit to be imputed.

b) Gross “IS” = (share of profit x reduced rate) + (share of profit x normal rate) + (share of profit x special rates).

c) Balance to be paid = Gross “IS” – imputable tax receivables.

d) Corporate tax “IS”: Net property income x “IS” rate (25% in 2024).

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

Here are some important rules on inheritance in France.

1-WHO ARE THE HEIRS IF THE DECEASED WAS MARRIED?

A) Priority children:

In the absence of a will, the deceased’s assets are distributed according to the legal rules.
Children have priority. They exclude other members of the deceased’s family, except the surviving spouse, with whom they share the entire estate.

B) On the surviving spouse:

The husband or wife always, and automatically, receives a share of the estate. When the deceased leaves only children from the couple, the surviving spouse inherits either the entire estate in usufruct, or full ownership of a quarter of the estate. The choice is theirs.
The children receive the remainder, i.e. bare ownership of the entire estate, or full ownership of three-quarters of the estate. The estate is divided equally between the children.
In the case of children from a previous marriage, the spouse inherits one-quarter of the estate in full ownership, with no option to opt for usufruct. Thus, in such a case, all the children (whether common to the couple or not) always share three-quarters of the estate in full ownership.

C) Absence of children:

The surviving spouse inherits the entire estate if the deceased’s parents are also deceased. Siblings, nephews and nieces are excluded from the estate. On the other hand, if both parents of the deceased are still alive, they receive half the inheritance. In this case, the widow or widower receives the remaining half (three-quarters if only one parent is alive).

D) On the prior death of a child:

If one of the deceased’s children has died, the grandchildren take the place of their predeceased father or mother, sharing the share of the estate he or she should have received.
They are said to come in “representation” of their father or mother. On this occasion, they share equally in the abatement to which their parents were entitled.

GOOD TO KNOW:
Drawing up a will allows you to change the rules of inheritance, by increasing the rights of a spouse, favoring a child, protecting a civil union partner, or benefiting an association.

2-WHAT ARE THE SPOUSE’S RIGHTS TO THE HOME?

A) The minimum one-year protection period:

During the year following the death, the surviving spouse can live in the couple’s home free of charge (even if it is the deceased’s own property) and use the furniture. They do not have to leave their home in a hurry, and their living environment is protected. The value of this right does not reduce his share of the inheritance. If the couple were tenants, the rents paid by the surviving spouse are reimbursed for one year by the estate (i.e. by the heirs).

B) Lifetime rights:

After this one-year period, ii can still live in the property and use the furniture for the rest of his life. There is no point in asking for this if he does not inherit or if he inherits a share of the estate in full ownership. This is because, if he or she inherits the entire estate in full ownership or usufruct, ii already benefits from the use of the home and furniture for the rest of his or her life. With this life interest, the spouse continues to occupy the home beyond the first year. The value of this right is deducted from his or her inheritance rights and is therefore deducted from his or her share of the inheritance (if it exceeds the latter, he or she does not have to compensate the other heirs).

C) On the limits of the life estate:

The surviving spouse retains this right of use and habitation even if he or she remarries. However, he/she is obliged to live in the property personally: it cannot be rented out, unless he/she needs to obtain the necessary resources to move into a home or establishment suited to his/her needs. The other heirs cannot oppose this right. However, by mutual agreement with the surviving spouse, they can convert it into a life annuity or capital sum.

D) On the will of the deceased:

As the temporary right of one year is a direct consequence of marriage, the surviving spouse cannot be deprived of it. On the other hand, as the lifetime right of habitation is of an inheritance nature, the deceased could, during his lifetime, deprive his spouse of it by authenticated will. This option is worth considering if the family home is a family asset and the children of a first marriage do not wish to see their step-parent live there.

GOOD TO KNOW:
If the surviving spouse is in joint ownership with other heirs, he/she has priority in obtaining ownership of the home and its furnishings when the estate is divided.

3-WHO ARE THE HEIRS IF THE DECEASED WAS NOT MARRIED?

A) On orders of inheritance:

Family members are called upon to succeed in this way:

– 1st order heirs: children and their descendants (grandchildren, great-grandchildren… ) ;
– 2nd order heirs: father and mother; brothers and sisters and their descendants (nephews, nieces);
– 3rd-order heirs: ascendants other than father and mother (notably grandparents);
– 4th-order heirs: collateral relatives other than brothers and sisters, and their descendants (uncles, aunts, cousins up to and including the 5th degree).

Each of these four categories constitutes an order of heirs that excludes the following. In practical terms, if there are no heirs in the 1st order, those in the 28th order take precedence over those in the 3rd and 48th orders, and so on.

Please note that in the case of cohabitants and PACS partners, the surviving spouse will not inherit if he/she has not been named as heir in a will.

B) On sole children as heirs :

When the deceased leaves children, they displace all other family members and share the estate equally among the sole heirs. In other words, parents, siblings, cousins, etc. receive nothing.

C) On the rest of the family:

In the absence of children (or grandchildren to represent them), heirs of the second order are called upon to succeed the deceased. The deceased’s father, mother, brothers and sisters share the estate. Each parent receives a quarter of the deceased’s estate, and the siblings (or their children in the event of pre-decease) share the remaining half equally. If only one of the deceased’s parents is alive, he or she inherits one-quarter of the estate, with the brothers and sisters sharing the remaining three-quarters equally. If both parents are deceased, the brothers and sisters inherit the estate.

D) Divorce proceedings :

As long as the spouses are not divorced, they remain heirs to each other. If one of them dies, the survivor receives part of his or her estate, and even the whole estate if the deceased had no children and his or her parents are no longer alive. If this is not the case, a will must be drawn up to disinherit the other.

Note that if there are no children, it is not possible to completely exclude your spouse, who becomes an heir “reservataire” to a quarter of the estate.

GOOD TO KNOW:
If there is no heir in each family (or only beyond the 68th degree), the estate is recovered by the State and is said to be
“escheated

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

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