In a June 13, 2018 decision1, the fully bench of the Council of State defines the concept of a "lead holding company" for the first time.
This concept, which is central to applying a certain number of tax measures2, has been the subject of numerous questions in recent years due to its vagueness and the resulting legal uncertainty for taxpayers.
The facts leading to the Council of State's decision are as follows:on December 1, 2006, shareholders sold the shares they held in the holding company Cofices, which held an operational subsidiary.They then considered that the capital gains realized in this sale were exempt pursuant to the allowance for the retention period provided by the version in force at the time of the facts of Articles 150-0 D ter and 150-0 D bis of the French Tax Code.
Pursuant to these measures, the allowance is applicable to sales of shares in a holding company only if the company can be categorized as a "lead holding company".
In this case, the tax authorities rejected the application of the allowance because there was no "lead holding company" agreement between Cofices and its subsidiary.The lower court ruled in the tax authorities' favor, holding that the condition related to the company's activity was not met because the holding company had not, "actively and continuously participated in conducting the group's policy and in the control of its subsidiaries"3.
In a didactic holding, the Council of State overturned the appeals decisions, stating that:
"A holding company that has as its principal activity, in addition to managing a portfolio of shareholding, the active participation in conducting the group's policy and in the control of its subsidiaries and, if applicable and purely internally, the provision of specific, administrative, legal, accounting, financial and real estate services, is the lead company of its group."
This decision is instructive in several respects:
Theoretically, the definition as laid down by the Council of State restates the criteria laid down by law4 and administrative doctrine5: a holding company which (i) actively participates in conducting the group's policy, (ii) which controls the subsidiaries, and (ii) if applicable, performs services, is a lead holding company.
However, and this is the decision's principal contribution, the Council of State indicates that the activity as the lead company must be exercised as the principal activity.It follows that a holding company may be its group's lead...