Background
OPCI Médicis, a variable-capital real estate investment company whose shares were 99.85% owned by Mutuelle Médicis, sold a real estate asset on April 30, 2015. Its board subsequently approved the repurchase and cancellation of shares held by Mutuelle Médicis as part of an €18.8 million capital reduction. OPCI Médicis paid that amount to Mutuelle Médicis on July 22, 2015.
The tax administration assessed the transaction to registration duties at the 5% rate under Articles 825, 726, and 730 quinquies of the General Tax Code, together with late-payment interest. After its administrative claim was implicitly rejected, OPCI Médicis sued for relief from €940,000 in duties and €78,960 in interest and for repayment of the amounts paid. The Paris Court of Appeal rejected its claims, and OPCI Médicis appealed on points of law.
The Court’s Holding
The Court of Cassation dismissed the appeal. On the procedural issue, it held that the minutes of OPCI Médicis’s board meeting were not an instrument making Mutuelle Médicis jointly liable for the registration duties because Mutuelle Médicis was not a party to that instrument. OPCI Médicis therefore could not challenge the reassessment procedure on the ground that the tax administration had failed to notify Mutuelle Médicis of the procedural documents.
On the merits, the Court held that the special tax regime in Article 825, paragraph 2, governing a variable-capital real estate investment company’s repurchase of its own shares—and incorporating Articles 726 and 730 quinquies—derogates from the ordinary rules governing corporate capital transactions, including capital reductions. Because the statutory shareholding condition in Article 730 quinquies(b) was satisfied, the repurchase was subject to the 5% registration duty under Article 726(I)(2), even though it implemented a previously approved capital reduction. The fixed €500 duty applicable to certain capital transactions under Article 814 C did not displace that special regime.
Key Takeaways
- A qualifying real estate investment company’s repurchase of its own shares falls under the special registration-tax rules even when the repurchase is a means of carrying out a capital reduction.
- Where the Article 730 quinquies(b) shareholding condition is met, the repurchase is subject to the 5% duty prescribed by Article 726(I)(2), rather than the fixed €500 capital-transaction duty.
- Board minutes do not create joint liability for registration duties on the part of a shareholder that was not a party to the instrument, so the tax administration need not notify that shareholder of the reassessment procedure on that basis.
Why It Matters
The ruling confirms that transaction structure does not permit variable-capital real estate investment companies to avoid the special tax treatment of share repurchases. Characterizing a buyback and cancellation as the implementation of a capital reduction does not bring it within the ordinary fixed-duty regime when the specific statutory provisions governing such companies apply.
The decision also clarifies that references to a shareholder and the repurchase price in corporate board minutes do not, without the shareholder being a party to the instrument, create the joint tax liability that could support a claim to separate procedural notification.