Under French law, assignment of receivables does not attract any transfer tax, stamp duty or similar taxes (unless the assignment is voluntarily submitted to tax registration) and qualifies as VAT-exempt financial transactions regardless of the nature of the receivables (except for operations related to the collection of receivables). It is also notable that the sale of receivables at a discount, or where a portion of the price is payable upon collection of the receivable, is considered to be a financial expense deductible from the seller’s taxable result.
No withholding tax applies to payments of interest or other income made by debtors (under trade receivables owned by them) established or domiciled in France, unless such payments are made in a non-cooperative state or territory (“NCST“), in which case they are subject to a 75% withholding tax. NCSTs are defined under Article 238-0 A of the French Tax Code, as being jurisdictions which have not ratified a treaty with France (or 12 other jurisdictions) providing for the exchange of tax-related information, are not member states of the EU, and are under scrutiny by the OECD Global Forum on Transparency and Exchange of Information. A list of NCSTs is updated yearly by the French Government (please refer to order (arrêté) of 16 February 2024 for the last update).
Moreover, pursuant to Article 261-C-1°-c of the French Tax Code, services in relation to receivables are, in principle, exempt from VAT. However, as an exception to the foregoing, services in relation to the collection of receivables (debt recovery services) are subject to VAT.
The tax situation of SVs differs depending on whether they were formed as a fund or a company:
- if it is a fund, it does not have legal personality and is a tax-transparent vehicle for corporation income tax purposes, and it cannot benefit from double taxation treaties entered into by France; and
- if it is a company, it has legal personality and is not tax transparent, and is therefore subject to corporate income tax and may be recognised as ‘tax resident’ and benefit from double taxation treaties entered into by France.