Creating a corporate group is not merely about circulating money between several entities.
It also involves organizing who owns what and how the group will evolve over time.
In practice, a group is constantly evolving. A new activity may require the creation of a subsidiary, some companies may be merged, others eliminated, or even reorganized. All these changes involve capital movements.
The stake is simple: to structure the group in a clear manner, secure its activities, and maintain an organization adapted to the company’s needs.
I/ The Parent-Subsidiary Relationship: The Starting Point of Any Organization
A group is based primarily on a capital link. A parent company holds shares in one or more other companies, called subsidiaries.
When it holds more than half of the capital, it directly controls the decisions. But even with a smaller stake, it can retain control if the other shareholders are dispersed.
This link allows the group to be organized while preserving each company’s autonomy. In practical terms, each subsidiary retains its contracts, employees, and debts. If one subsidiary encounters difficulties, the others are not automatically affected.
In practice, this role is often fulfilled by a holding company, which centralizes investments and manages the overall strategy.
II/ Creating, Reorganizing, Simplifying: Operations That Shape a Group
A group is never static. It evolves according to projects and needs. When an activity needs to be isolated, it can be transferred to another company within the group through a partial asset contribution. This operation allows, for example, the separation of a restaurant business from a hotel business for better management.
In return for this contribution, the transferring company receives shares (stocks or equity interests) from the acquiring company.
Conversely, when several companies carry out a similar activity or when the organization becomes too heavy, it may be beneficial to consolidate them. Mergers allow several companies to be combined into one, simplifying management and reducing costs.
Some structures may also become obsolete over time. When a subsidiary is 100% owned, a universal transfer of assets (TUP) allows for its straightforward dissolution. All its elements, whether assets, debts, or contracts, are transferred to the parent company without going through a traditional liquidation process.
III/ Taxation: Repatriating Profits Without Heavily Incurring Taxation
Capital transfers have significant tax implications, but some mechanisms can mitigate their impact.
1/ The parent-subsidiary regime prevents double taxation of profits. When a subsidiary generates a profit, it is taxed first at its level. If it is then distributed to the parent company, it could be taxed a second time. To avoid this, the regime provides for a near-total exemption of dividends: only a portion of expenses and charges is included in the parent company’s taxable income.
In practice, two situations must be distinguished.
When the parent company holds at least 5% of the subsidiary’s capital and commits to holding the shares for at least two years, the parent-subsidiary regime applies. In this case, only 5% of the dividends are included in the parent company’s taxable income, resulting in a 95% exemption for the parent company.
When the parent company holds, directly or indirectly, at least 95% of the subsidiary’s capital and the companies are consolidated for tax purposes, the 5% exemption is reduced to 1%. This means that 99% of the dividends are tax-exempt, allowing for a virtually tax-neutral cash flow.
In all cases, the companies must be subject to corporate income tax to benefit from these provisions.
For example, a parent company holds 50% of the capital of a subsidiary that makes a profit of €100,000. This subsidiary is subject to corporate income tax, with a reduced rate of 15% on the first €42,500 if it meets certain conditions, including a turnover excluding VAT of less than €10 million, fully paid-up share capital, and at least 75% of it continuously held by individuals or companies meeting the same criteria. Above this threshold, or if these conditions are not met, the profit is taxed at the standard rate of 25%.
This results in:
The tax due amounts to €6,375 on the first €42,500, then €14,375 on the remainder, for a total of €20,750. After tax, the subsidiary has a distributable profit of approximately €79,250.
If this sum is paid to the parent company, only a 5% share, or €3,962.50, is included in its taxable income. Taxation therefore remains very limited, allowing profits to be reinvested within the group without significant tax pressure.
2/ Another mechanism allows for further optimization: tax consolidation. This allows for group-wide accounting by offsetting the profits and losses of the various companies. This regime is possible when the parent company holds at least 95% of the capital of its subsidiaries.
Finally, restructuring operations, such as mergers or asset contributions, can benefit from a tax-neutral regime. The tax is not eliminated, but deferred, allowing the group to be reorganized without immediately incurring a tax burden.
IV/ International Groups: The Redistribution of Dividends Between French and American Holding Companies
Groups of companies today have an increasingly international dimension. It is common for a subsidiary to be created or held by a holding company located abroad, particularly in the United States, or conversely, for a holding company located in France to control American subsidiaries.
In these situations, the issue of dividend repatriation within the group becomes crucial. The applicable tax treatment then depends not only on the country where the parent company and the subsidiary are located, but also on the international tax treaties concluded between the countries concerned.
1/ An American holding company holding a subsidiary created or located in France
When an American holding company owns a subsidiary in France, the profits earned by the latter are first taxed in France under corporate income tax. If these profits are then distributed to the American parent company as dividends, the Franco-American tax treaty provides a framework and reduces the taxation applicable to this repatriation of cash.
Article 10 of this treaty limits the French withholding tax on dividends paid in the United States. When the American holding company directly or indirectly owns at least 10% of the share capital and voting rights of the French company, the withholding tax rate is limited to 5% of the gross amount of dividends. In other cases, it is capped at 15%.
The French parent-subsidiary regime can also be advantageous in certain specific situations. This may be the case when a foreign company has a branch in France and the dividends received are included in the taxable income of that branch. In this case, the benefits of the regime should not be dismissed outright: the conditions for holding the shares are assessed at the level of the foreign company itself.
In practice, this opens up interesting structuring possibilities for international groups. Depending on the chosen structure, dividend repatriations can therefore benefit either from the reduced rates provided for by the Franco-American tax treaty or, in certain configurations, from the French parent-subsidiary regime.
2/ A holding company located in France with a subsidiary located in the United States
The reverse situation is also common when a French holding company owns an operating company (subsidiary) in the United States.
In this case, the profits earned by the American subsidiary are first taxed in the United States before potentially being distributed to the French parent company as dividends.
Article 10 of the Franco-American tax treaty also provides a mechanism for limiting US withholding tax. When the French holding company directly owns at least 10% of the share capital and voting rights of the American company, the withholding tax applied in the United States is limited to 5% of the gross amount of the dividends. In other cases, the applicable treaty rate is set at 15%.
Unlike the previous situation, the French holding company can now benefit from the parent-subsidiary regime, even if the subsidiary is located abroad.
To achieve this, several conditions must be met, including a minimum ownership of 5% of the capital of the American subsidiary and the subjection of the latter to a tax equivalent to corporate tax (IS).
When the conditions for the parent-subsidiary regime are met, dividends transferred from the United States to France benefit from near-total tax exemption in France. Specifically, 95% of the dividends received by the French holding company are tax-free, and only a 5% portion of expenses and charges remains taxable.
These capital transactions may seem technical, but they have tangible consequences for the group’s operations.
A poorly designed structure can complicate management, increase taxes, or create unnecessary risks. Conversely, a clear structure allows for better management of the business and supports its growth.
Anticipating these operations is therefore essential. Consulting a business lawyer allows you to choose the right tools, secure the process, and ensure that each decision truly aligns with the group’s objectives.