French 3% Tax issue
8 September 2010
In a case where a foreign 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 foreign owner runs a risk of having to pay this tax, or to defend itself against a claim. If such a foreign 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 the French tax authorities may require the French real estate subsidiary to pay this tax on behalf of its former foreign shareholder, and put a lien on the property. 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 Elise Klein Wassink of 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 sales 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.
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