Shares acquisition costs: is it in the interest of the parent company of the selling entity to bear these costs from a tax standpoint?

In an unprecedented move, the tax judge has allowed a top holding company to deduct, for corporation income tax purposes, costs relating to the acquisition of shares performed by its subsidiary on the basis of both its own interests and the interests of the group it belongs to.

Expenses incurred in connection with the acquisition of shares are tax deductible under standard conditions, which means that it must be possible to prove that it is in the interests of the company to incur these costs. It is therefore generally assumed that these costs must be borne by the legal entity acquiring the shares.

However, this legal conception, which consists of reserving the tax deduction of the acquisition costs to the company that acquires the securities, sometimes clashes with economic reality. Although it is often the case in groups of companies that the acquisition of a target company is carried out by a pure holding company set up for the purposes of the transaction, this is generally a strategic decision taken at a different level in the interests of all or part of the group.

Read the full article (French) by Kevin Peau, Partner-Attorney at law, and Ines Henchiri, Attorney at law, at Eight Advisory Avocats published in Option Finance on 18 June 2024.