Fusion (undertaken)

In finance, the fusions are conceived like a takeover of a company by another. The fundamental characteristic lies in its method of payment: it is carried out in titles and not in liquidities.

There exist several types of fusions from which the consequences legally speaking and tax are different. In a general way, these legal assemblies can take the form of a merger by amalgamation, a contribution of titles or a contribution partial of credit. By disregarding synergy, there does not exist any difference between the various operations: the group is economically identical, whatever the adopted form.

This is why, following fusion, the value of the economic credit and the turnover consolidated remain unchanged. Also, the operations of fusion do not induce any creation of value in the immediate future and, let us recall it, do not allow to release any flow of treasury. However, thereafter, the operation is translated on the economic plan by Synergie S or disynergies, as regards costs, of position on the market (threshold criticizes)… Anticipation that the shareholders of those make exploits stock exchange valorization if the company is with dimensions on a Marché organized.

Various techniques of fusion - legal Aspects

the merger by amalgamation

The merger by amalgamation is the operation by which one or more companies, dissolved but not liquidated, transmit to an existing or new company, their entirety inheritance, credit and liability included/understood. Their contributions are remunerated by the attribution of social rights representative of the preexistent or new company and, possibly, of the payment of a balance in cash not exceeding 10% of the face value of the shares or distributed actions.

The basic diagram of an operation of fusion involves three distinct but concomitant legal effects, namely:

universal transmission of the inheritance of the surviving company at the surviving company or the new company resulting from fusion;

Correlatively with the transmission of its inheritance, the operation of fusion involves necessarily the dissolution of absorptive;

fusion supposes the remuneration of the contributions of the surviving company. This one is carried out by means of an attribution of social rights. Thus, the associates of the surviving company must receive titles of absorbing n the other hand their contributions. They are new titles of the surviving company created n the other hand Capital growth known as " by exchange of titers".

The contribution of titles (or fusion with English)

The contribution of titles is an operation by which an investor (natural person or moral person) brings his titles of a company has at a company B and receives in remuneration of the titles of the company B. Contrary to a merger by amalgamation, the company has remains and becomes a subsidiary company of B, the shareholders of has becoming shareholders of B.

The contribution partial of credit

A contribution partial of credits is an operation by which a company made contribution with a company B of part of its assets (and the passive ones), and receives in exchange of the titles emitted by the company B. the contribution of part of the credit at another company are connected with a sale (a transfer), with the mode of remuneration near. Here, the payment is carried out in actions and the profit company increases its capital of the amount of the contribution. There exists a tax mode more advantageous than that of a transfer: it is about the contribution of a complete branch of activity. The parts can then subject this operation to the tax mode of scissions; what reduces the tax cost of it (deferment of imposition for the appreciations and exempts capital duties).

Countable aspects of fusions and comparable operations

The opinion n° 2004-01 of March 25th, 2004 of the National council of Accounts Department (CNC) gives countable new rules fusions comparable operations. This opinion aims primarily the method of valorization of the contributions and the modifications of the treatment of the profit and Mali of fusion.

The value of contribution represents the accounting value for which the goods are transmitted absorptive to absorbing. This being, the determination of the value of contribution largely exceeds the only framework of the countable recording but also extends to the question from countable information, with the presentation of the financial statements without forgetting an important tax dimension.

In direct reference to the group accounts, the operation of fusion is from now on comparable with an acquisition and thus implies a valorization of the contributions to their actual value. In the case of a situation of control preliminary to fusion, always in reference to the group accounts, the revaluation of assets is proscribed and the contribution must be carried out with the accounting value. Lastly, without insisting on the details of the treatment of the profits and malis of fusion, those are respectively comparable with the concepts of “quota of enrichment” and “goodwill Net”.

Ultimately the opinion of the CNC founds the obligation, in the social accounting, of methods evaluation reserved until now exclusively for the group accounts. The adoption of this opinion is then symptomatic of a will to make converge the methods evaluation of the social accounting towards the international countable standards.

Applicable countable rules at the time of fusions

The valorization of the contributions

In an operation of fusion (or contribution), one should not confuse the financial value retained in the fusion which is used as reference for the determination of the parity of exchange and the accounting value to which the credits are juridically brought to the surviving company.

The determination of the exchange value does not involve any tax and countable implication for the involved companies. The determination not having for only goal to establish the equitable parity enters the actions or partnership shares of absorptive and those of absorbing.

The value of contribution thus represents the accounting value for which the goods are transmitted absorptive to absorbing. This being, the determination of the value of contribution largely exceeds the only framework of the countable recording but also extends to the question from countable information and the presentation from the financial statements without forgetting an important tax dimension. Indeed, the determination of the value of contribution will be used as a basis for calculation of the possible appreciations of fusion.

In the species, the determination of the value of contribution can be carried out according to two methods: the fusion made on the basis of accounting values and the fusion made on the basis of actual values . By principle, valorization must be done according to the actual values but the tax authorities tolerate, by way of derogation, an evaluation with the accounting values since those can be regarded as representative of the actual value of the transmitted credits.

Until 2004, the companies could freely choose the methods of evaluation of the contributions. The payment of the applicable CRC, obligatorily, since 2005 reconsidered this freedom of transcription. The values to be retained result, in an imperative way, the situation of control at the time of the operation and the direction in which it is carried out. The companies thus do not have any more the choice of the method of valorization of the contributions what limits considerably the tax management appropriatenesses of the operation of fusion.

By implicitly imposing the method of valorization countable of the contributions for all the operations of internal reorganization, the fusions carried out with the countable net amount should largely multiply.

The direction of fusion and the valorization of the contributions

In its opinion, the CNC definitively removed the countable choice between a valorization with the actual values or the accounting values. Indeed, as we said previously, the contributions are evaluated with the countable net amount or with the actual value according to the nature of the situation controls at the time of the operation and the direction of the operation.

For the operations under common control, fusions must be carried out on the basis of accounting value. For fusions under distinct control, fusions must be carried out on the basis of actual value except on the assumption that fusion would be made with back. To a given situation a method of valorization of the contributions corresponds. The CNC thus puts a crushing argument at the option between actual value and accounting value for considerations of tax nature.

The implementation of these provisions first of all orders to clarify the concept of common control and distinct control, borrowed concept directly from the Commercial law.

Companies are regarded as being under common control when one of the companies taking part in the operation controls beforehand the other or when the two companies are under the control of the same parent company. Contrary, two companies are under distinct control when none the companies controls the other the operation before or when these companies are not under the control of a parent company.

To appreciate the concept of control, the CNC returns in the paragraph 1002 of the payment N° 99-02 of the CRC relating to the group accounts of the business firms and state enterprises. The CNC recalls on the matter that exclusive control is the capacity to direct the policies financial and operational of a company in order to draw advantage from its activities. This control results:

is direct or indirect detention of the majority of the rights to vote in another company;
is designation, during two successive exercises of the majority of the members of the bodies of administration, direction or monitoring of another company; the consolidating company is supposed to have carried out this designation when it laid out, during this period, directly or indirectly, of a fraction higher than 40% of the rights to vote and that no other associated or shareholder held, directly or indirectly, a fraction higher than his;
is right to exert a dominant influence on a company under the terms of a statutory contract or clauses.

As for the direction of the operation, the CNC distinguishes the operations from fusion at the place and back. A fusion is at the place if, after fusion, the principal shareholder of the surviving company, although diluted, its power to control preserves on this one: the target is the surviving company and the initiator is the surviving company or one of these subsidiary companies. Conversely, a fusion with back is a fusion in which, after the operation, the principal shareholder of the surviving company takes the control of the surviving company. The target is the surviving company and the initiator is the surviving company or her mother. Moreover, these provisions also apply for the contributions partial of credits.

If the operations are carried out between companies placed under common control, the contributions are thus evaluated on the basis of accounting value. Indeed, insofar as the situation of control already exists before the operation, the latter does nothing but reinforce or maintain a situation of control. In this logic, which is taken again with the group accounts, it is not necessary to revalue the whole of the credits and the passive ones. According to the CNC, this situation must apply that the operation is made at the place or back.

If the operations are carried out between the companies under distinct control, it is necessary to consider in a different way the situation according to whether the operation is carried out at the place or back. If the operation is carried out at the place, the situation is not established before the operation and the operation thus corresponds to a takeover. In the logic of the group accounts, this operation must be treated as an acquisition made on the basis of actual value.

If the operation is made with back, the CNC indicates that, taking into account the legal constraints, the credits and the passive ones of the target (corresponding to absorbing or the profit company of the contributions) cannot be entered with their actual value since they do not appear in the treaty of contribution. The CNC considers indeed that the credits and the passive ones appearing in the treaty of contribution are those of the initiating company and that they do not have to be revalued.

The CNC admits an exemption from this principle. Indeed, that when the contributions must be evaluated with the countable net amount but that the credit net is insufficient to allow the release of the capital, the actual values of the assets must be retained. By doing this, a negative countable credit net could not be a brake for the realization of fusion since the actual values of the contributions are positive.

Moreover, one will retain this exemption that the strongly overdrawn companies, even under control of absorbing, can always carry out fusion on the basis of actual value, and in fact, recapitaliser the stockholders' equity. Lastly, this exemption makes it possible to maintain the possible benefit with a renunciation of the mode of favor.

Treatment of the no-claims bonus and malus of fusion

The operations of fusion generally constitute, either the final stage of an operation of bringing together between two companies whose process was started by an acquisition of a holding of absorbing in the capital of absorptive, or an operation of reorganization between companies and their subsidiary companies. In these two cases, the surviving company is associated with the surviving company before the operation with fusion .

The difficulty of a participation of absorbing in absorptive lies in the handing-over at associated with absorptive titles of the surviving company. Indeed, this situation will necessarily lead to the given to the surviving company of its own titles .

In practice, the surviving company decreases the capital growth with height of its quota of detention of the titles of absorptive. By doing this, the surviving company remunerates the associates other than exclusively itself.

The cancellation of the titles involves in this case the observation of one more or less been worth called profit of fusion or Mali of fusion . To the plan of the principle, the profit or Mali of fusion corresponds to the difference between the price of acquisition of the titles of absorptive by absorbing and the value of contribution of these same titles. If this difference is positive one calls it profit of fusion, Mali if it is negative.

The opinion of the CNC modified the accounting treatment of the profit and Mali of fusion for the operations carried out starting from January 1st, 2005.

Treatment of the profit of fusion

From a countable point of view, the profit was recorded a long time like a complementary premium of fusion. From now on, “ the profit is entered in the financial result with height of the quote share of the results accumulated by the surviving company since acquisition and not distributed and in stockholders' equity for the residual amount or if the accumulated results cannot be given in a reliable way. ”

The third European directive aims at removing double taxations which could intervene within the framework of fusion. So the imposition of the profit then is expressly excluded then that would amount taxing first once the results at absorptive and second once during the cancellation of the titles, the accounting treatment thus does not have any effect on the tax treatment .

Example of treatment of the profit of fusion:

The amount of the profit of fusion total, given with 100.000 €, is then ventilated in result for the quota of accumulated and not distributed results and the remainder in stockholders' equity.

This principle of accounting is actually borrowed from the methods of establishment of the group accounts. Indeed, by analogy, the quota to be registered in financial result (here 10.000 euros) would correspond, in group account, with the “quota of enrichment or reserves consolidated” of the subsidiary company since its acquisition by the parent company.

This allowed solution by the CNC, more largely corresponds, with a direct reference of the accounting treatment of fusions and those of the group accounts.

Moreover, the treatment of Mali of fusion is in this point of view even more symptomatic, since it actually corresponds to the treatment of the goodwill Net.

Treatment of Mali of fusion

By taking again the example used for the calculation of the profit of fusion, with as additional assumption that the accounting value of the titles is of 300.000 and not of 100.000, one a:

Mali of fusion represents the negative difference between the credit net received by the surviving company with height of its participation held in the surviving company, and the accounting value of this participation. Mali of fusion can be broken up into two elements:

of a technical Mali generally noted for fusions or the operations of universal transmission of inheritance evaluated with the accounting value when the net amount of the titles of the surviving company appearing in the active of the surviving company is higher than the countable credit net brought. This component of Mali corresponds, with height of the participation before held in the most been worth latent on assets entered or not in the accounts of absorptive the deduction made of passive not entered in the absence of countable obligation in the accounts of the surviving company (for example provisions for retirements, passive deferred taxes).

Beyond technical Mali, the balance of Mali (or " vrai" Mali) which can be representative of a complement of depreciation of the participation held in the surviving company, must be entered in the financial result of the surviving company of the exercise during which the operation is carried out.

Pursuant to the provisions of the CNC, one a:

Technical Mali is then entered in the active of the assessment, and corresponds to the goodwill Net in the group accounts. Moreover, the follow-up of Mali of fusion is related to the same formalism as that of the goodwill: a test of depreciation and the observation of a possible exceptional damping.

The tax treatment of this depreciation is not yet clearly established, but it remains not very probable that the administration accepts their deductibility. That would amount, ultimately, founding the deductibility of the “Goodwill”. This being, certain European countries like Italy, admit this deductibility under certain conditions.

In the actual position of the things, in France, the accounting treatment of the profit and Mali of fusion remains without tax impacts.

Transborder fusions

The situation presents restricted the possibilities of fusions transeuropéennes

In the European Union, certain legislations exclude or do not envisage transborder fusion and others subject it to restrictive conditions. In the Netherlands, in Sweden, in Ireland, in Greece, in Finland, in Denmark and in Austria, transborder fusions are prohibited, generally obliging the company which had vocation to acquire another of them to be satisfied with a catch of majority stake in the capital of the latter. In Germany, transborder fusion is possible since April 20th, 2007. In France, certain authors do not hesitate to conclude that fusions between companies of different nationalities are impossible because of incompatibility of the applicable legislations.

The state of advanced European projects

Before foreseeing the incidences of the European mode of fusions on the national legislations, it is advisable to point out the legal effect of a transborder fusion. Fusion has as a result to transform the surviving company into a permanent establishment of the surviving company, located in another Member State. Thus the surviving company will be always subjected to the legislation of its country as a permanent establishment of the profit company.

In this context, the whole of the European projects on fusions are based then on the double need for a common legal framework but also for a fiscal harmonization for each country of the European Union. Thus, in the tax plan, the localization of the entity resulting from the bringing together will depend on the level on imposition on the benefit generated by this entity. For this reason, the German reform of 2001 on the distributions as well as the exemption of the appreciations on titles envisaged by many countries (Luxembourg, Germany, Italy.) an important challenge in term of tax attractivity of France posed.

Parallel to tax measurements of harmonization, a project of European directive going back to November 2003 would aim at “filling an important gap as regards company law: to facilitate transborder fusions of business firms without the national legislations of which they raise, in general that of the place of their principal seat, not being able to constitute an obstacle. ” This project has just been adopted in first reading by the Council and the Parliament Europeans in joint decision in November 2005 (see J.O.U.E n° L 310 of November 26th, 2005). This tenth directive must be transposed by the Member States at the latest on December 15th, 2007. The tenth directive thus tends to remove the difficulties appeared with the text of 1990 in particular on the various transpositions by each Member State. Moreover, the project also takes into account “the need affirmed by the European authorities to improve competitiveness of the European economy” with, in particular, the installation of a general framework supporting the economic activity in the European Union. It comprises few material rules and generally returns to the provisions controlling national fusions. It is primarily about a body of rules of conflict. One realizes some in particular with regard to the participation of the workers where, in front of the resistance of the German delegation, the directive chose the application of the rule since one of the participating companies is subject to such a rule. For the time being the directive was not transposed but, while waiting for his transposition, one always doubts his effectiveness because of nature of rules of conflict of his provisions.

Impact of the Community draft Directive on fusions transeuropéenne

The draft Directive on fusions aims primarily making of a general of legal order and tax framework. The dissonances of modes related to the internal transpositions of the preceding directive will be isolated. Thus, the list of the companies to which the directive has vocation to apply integrates from now on the new shapes of companies or particular legal entities. Indeed, all the companies automatically subjected to the IS will be eligible with the mode of favor. (in France the mode of favor is extended to the companies subjected to the IS on option)

Moreover, the proposal for a Directive sticks precisely to the situation of the European company by specifying that the transfer of seat of a European company of a Member State to another does not lead directly to the imposition of the appreciations. The proposal for a Directive also states that the mode of carryforward of imposition of the appreciations has vocation to apply on the assumption of the subsidiarization of a branch established in another Member State.

Lastly, the proposal for a Directive reveals a new form of operation of reorganization, the scission with exchange of actions. In this operation, the company proceeds to the contribution of one or more complete or autonomous branches of activities to the profit of an other preexistent company, and receives titles n the other hand. This operation actually corresponds so that we know in France in the form of a contribution partial of bearing credit on a complete branch of activity, with distribution, within one year, titles received n the other hand (Article 115-2 of the cgi). It remains to be specified that the adoption of this directive will involve on the one hand, the end of the double taxation of the appreciations on titles because of a contribution not with the accounting value but with the actual value, and on the other hand, the suppression of ministerial approval authorizing the distribution of the titles received within one year.

See too

External bonds

French-speaking Teachware on fusions acquisitions
Data bases on fusions acquisitions

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