Cover for French 3% tax risk
10 February 2012
In a case where a French or foreign direct or indirect owner of French real estate might have claimed or benefitted from an exemption of the so-called 3% tax, but documents are missing or the file is incomplete to give watertight proof that such exemption applied, the owner runs a risk of having to pay this tax, or to defend itself against a claim. If such an owner wishes to sell its French real estate holding company, such company may, under certain circumstances, be held liable for this tax in the future and may be required to pay this tax on behalf of its former shareholder. The French Tax Authorities can, under certain conditions, attach a mortgage to the French real estate in order to obtain payment of the 3% tax. In such a situation, the acquirer will off course require certain guarantees, as well as part of the acquisition price in escrow for the delay of the statute of limitations (6 years). This will have a substantial impact on the economics of the deal for the seller, possibly rendering the deal unattractive and breaking it. Together with the specialist insurance broker Title Protection Europe, we have developed cover for this situation, allowing the seller to satisfy the demands of the acquirer without having to put part of the sale price in escrow for a number of years or accept a price reduction because of this latent risk. As usual in our business, a one time premium will be charged up front, entitling the acquirer to coverage up to the date of expiry of the statute of limitation for every tax year involved. The seller suffers no loss of opportunity or additional delays in the transaction, and will not have to burden its balance sheet with such a potential 3% tax claim after the property has been sold. Click here to view the French 3% tax insurance presentation in English and click here to view it in French. Click here to contact our French team.