Overview

The French tax authorities have published a 'white paper' on the tax treatment of French partnerships (sociétés de personnes or SDP). It proposes consultation on changing the concept of partnership as defined in French tax law towards a concept closer to international standards.

In France, partnerships are regarded as taxable persons in their own right, but the tax is due by their partners. Under international standards, partnerships are fiscally transparent, with the partners carrying on their business through the structure.

The white paper prompts legitimate fears regarding the evolution of the tax on capital gains realised on the disposal of shares in an SDP whose assets consist mainly of real estate. This change has been put forward before without success. However, there are reasons to believe that this time it could happen as soon as 2011.

These modifications may have multiple effects, in particular in international relations and the application of tax conventions to SDPs. Certain tax conventions do not permit France to tax the capital gains realised on disposals of shares in an SDP whose assets consist mainly of real estate.

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