France: Tax updates on “Charasse Amendment,” reinvestment under share contribution deferral regime, preferential tax regimes, and interest deductibility

The KPMG member firm in France has prepared reports (in French) related to the application of the “Charasse Amendment” in leveraged acquisitions, qualifying economic reinvestment under the share contribution deferral regime, the interaction of the parent-subsidiary regime with Article 123 bis, and market-rate interest deductions for certain financing arrangements.

• Charasse Amendment: The Council of State (Conseil d’État) held that capital contributions made to an acquiring company simultaneously with its acquisition of shares must reduce the acquisition price used to calculate the financial expense addback under the “Charasse Amendment.” The court rejected any requirement to demonstrate that the contributed funds were actually used to finance the acquisition and concluded that, because the contributions in the case exceeded the acquisition price, no financial expenses were required to be added back. Read the August 2026 report.
• Economic reinvestment: The Conseil d’État provided guidance concerning the economic reinvestment requirement for maintaining tax deferral under the version of Article 150-0 B ter applicable to a 2012 share contribution. The decision implicitly recognizes that shareholder current-account advances may constitute qualifying reinvestments when the funds are used for expenses or acquisitions supporting economic activity, although that determination depends on the facts and circumstances. In the case at issue, an advance used to acquire building land did not qualify because implementation of the economic activity had not commenced before the end of the two-year reinvestment period. Read the August 2026 report.
• Preferential tax regime under Article 123 bis: The Conseil d’État held that, for purposes of determining whether a foreign entity benefits from a preferential tax regime under Article 123 bis, the comparison with French taxation must take into account the parent-subsidiary regime. Although the court recognized that the general principle prohibiting abuse of law could, in principle, support disregarding that regime, it concluded that the tax authorities had not shown that the transaction at issue was motivated exclusively by a tax-avoidance purpose. Accordingly, the Luxembourg holding company was not considered to benefit from a preferential tax regime, and Article 123 bis did not apply. Read the August 2026 report.
• Interest deductibility: The French tax authorities published administrative guidance concerning the deduction of interest paid to related parties and certain associated enterprises. For fiscal years ending on or after December 31, 2025, the mechanism allowing a taxpayer to substantiate a market rate higher than the statutory reference rate applies not only to loans from related parties but also to loans from qualifying associated enterprises that are not related parties. The guidance also explains that an individual shareholder with the status of an enterprise may use the market-rate framework when the ownership interest constitutes a professional activity and the funds made available to the borrower come from the shareholder’s professional assets. Read the August 2026 report.