The FTA comment on the IFI

 9 June 2018

The FTA comment on the IFI!   

One week before the deadline for filing the tax return for IFI, the French Tax Authorities have now added their comments to the Bofip, (the Official Bulletin of Public Finances-Taxes)...

Although long (some 300 pages), at first reading this statement of practice does not seem to provide any definitive information compared to the legislative text or the comments already published, either because it confirms them or because the most delicate points are not addressed.

However, certain confirmations and positions on the part of the FTA deserve to be highlighted or at least made known.

We have tried here to identify the points that we regard as most important for making the IFI return, which must be filed by 15 June.

This is only an initial analysis, of necessity incomplete, that should be expanded once we have had time to analyse all of the comments by the FTA.

Taxable persons

Nothing new here: with respect to individuals, the FTA declare that non-resident status will be determined on 1 January of the tax year, not for the year as a whole.

Likewise, they seem to accept that those tax treaties containing provisions governing wealth tax will apply to the IFI.

Tax base


There are some clarifications or pointers to the legal nature of real estate, including buildings, according to their use.

The tax authorities for example state that:

  • Buildings constructed without a building permit will not fall outside of the tax base for IFI (but what is then their market value?).
  • Concessions located in cemeteries simply represent a right of use and consequently excluded from the tax base of the IFI – which we might have expected...
  • Particular caution is recommended for the valuation of historic monuments because of the significant charges with which they are burdened.
  • As regards usufruct, note that only the usufructuary is taxable on the value of the full title (except in special cases), which is also the case for temporary usufruct; the FTA specifically state that they will be looking for any potential abuse of the law. They also confirm that, in the case of usufruct held by a legal person, it is the value of the usufruct (and therefore not the full title) that must be taken into account when determining the taxable portion of the company.

Company shares

One clarification concerns entities that are not legal persons that are the “owner” of real estate assets: according to the tax authorities, partners should be considered as the direct owners of a portion of the underlying property, meaning that the rules governing the valuation of company shares will not therefore apply.

As regards the method of determining the taxable portion of company shares (as they represent the value of the underlying real estate), the FTA first confirm the principle of calculating the taxable portion of the value of such shares:

When taxable real estate assets or rights form part of the assets of a company or entity in which the taxable person, or a member of the tax household, directly holds shares, it is necessary to determine:
- the total value of the shares of the company or entity that the taxable person and other members of the tax household directly hold (A);
  N.B.: this value is understood in particular to mean after the add-back, as necessary, of the value of non-deductible debts within the meaning of Article 973 II of the French Tax Code (FTC) (BOI-PAT-IFI-20-  30-30).
- the actual market value of each taxable real estate asset or right held by that company or entity (B);
- the actual market value of all of the items making up the assets of the company or entity, including the actual market value of the taxable real estate assets or rights (C).

These values are determined using the valuation principles defined in BOI-PAT-IFI-20-30, according to the nature of the assets to be valued.

The taxable portion of the value of the shares held by the taxpayer corresponds to the value of such shares (A), to which is applied the coefficient corresponding to the ratio between, on the one hand, the actual market value of the real estate assets or rights (B) and, on the other, the actual market value of all of the assets of the company or entity in which the taxpayer has a direct holding (C).

The taxable person must include the taxable portion thus determined in the IFI tax base (BOFIP-PAT-IFI-20-20-20-10-180608 n°90).


No adjustment is recommended regardless of the type of asset appearing on the balance sheet: only the real estate assets or rights and the total amount of the assets are to be identified and valued when calculating the taxable portion; once the taxable portion is determined, in the form of a coefficient, it will applied to the market value of the shares concerned.


Should real estate assets be held via several cascaded companies, the tax authorities confirm their understanding of the legislation through practice, i.e.:

In practice it will be necessary to identify the company or entity holding taxable real estate assets or rights at the lowest level of the shareholding chain.

The calculation method provided for in I-C-1 § 90 shall then be applied to the company or entity in order to determine the coefficient corresponding to the portion of the value of its securities that represent the taxable real estate assets and rights.

The coefficient thus determined will be applied to the value of those securities held by the higher-level company or entity in the shareholding chain. The result is then added to the value of the taxable real estate assets and rights held directly by that company or entity for the purpose of calculating, on the above basis, the taxable value of the shares in that company or entity forming part of the shareholding chain.

This procedure is then repeated at each intervening level up to the company or entity in which the taxpayer directly holds shares (BOFIP, cited above, no. 120).


Exemption for companies carrying on an operational activity


For the record, assets allocated to the operational activity of the company that owns them, or of a company belonging to the same group (the notion of group may be restrictive), are exempted from the taxable base.
Similarly, shares in companies carrying on an operational activity are not included in the tax base of the taxable person if the latter holds, directly or indirectly, under 10% of said securities. 


In this regard, the FTA:

  • Cite the case of companies with mixed activities (operational and civil) to first hold that the legislation only exempts companies with solely operational activities (not specified by law...), then show their “pragmatism” by agreeing also to take into account for the purposes of exemption those companies with mainly operational activities, i.e. those where the actual value of the assets allocated to the activity and the amount of turnover that such activity generates represent at least 80% of their respective totals.

♦ While the 80% threshold could probably be discussed, it at least has the merit of existing and establishing a sure footing for those cases where it is achieved.

  • The FTA make no comment on the concept of allocation: it seems to us therefore that a wide view should be taken to include all real estate assets used for the operational activity regardless of their legal position (ownership, lease, delivery, etc.) or accounting status (fixed assets or stock), provided that they are indisputably being used for the operational activity.
  • The BOFIP expressly confirms that activities with a real estate aim (excluding rentals), namely property development and operational, are qualifying operational activities pursuant to Articles 34 and 35 of the FTC. Nothing is said about the assets allocated to these activities, except for indirectly in the comments relating to the exemption of assets allocated to a business activity within the meaning of the former ISF or wealth tax: the tax authorities specify that those assets that may be exempted can be held by companies, in particular shares in a SCCV (société civile de construction vente – civil companies for construction and sales) held by house-building companies (BOFIP-PAT-IFI-30-10-10-40-20180608, no. 50), which assumes that the underlying exempt real estate assets are entered as stock.
  • Lastly, it is stated that: Revenue-generating properties (“immeubles de rapport”) are nevertheless considered to be of a commercial nature where their acquisition results from a legal or regulatory obligation on the company (e.g. buildings allocated to demonstrating the technical reserves of insurance companies under Article R. 332-2, Insurance Code and Article R. 332-3, Insurance Code), (BOFIP-PAT-IFI-30-10-40-20180608, no. 190).

♦ The question arises of the analogy with developers whose clients insist that they become co-investors in rental projects over a period of time.

Organismes de Placement Collectif (OPC – open-ended real estate investment vehicles)

Certain OPCs may benefit from exemption if the taxpayer holds less than 10% and the OPC holds less than 20% of the taxable assets. 


The French Tax Authorities state:
 In particular, buildings and real estate rights will be disregarded where they are held in companies or entities whose activity is of an industrial, commercial, artisanal, agricultural or liberal nature where the taxpayer’s holding is less than 10% under the conditions mentioned above at I § 1-100 (BOFIP-PAT-IFI-20-20-20-20-20180608, no. 160).

The taxable assets of the OPC will not be assessed by taking account solely of the objective exemptions that may be established at OPC level (for example, allocation to an operational activity), but also by taking account of the holder’s position, in particular indirect holdings by the OPC in the underlying companies.

As a result, all holders with a stake of less than 10% in the OPC can benefit from the fact that assets that may be taxable but are owned by operationl companies will not be taken into account when calculating the 20% threshold of taxable assets at OPC level: this mechanism is complex but advantageous.

♦ Note however that this will not apply in cases of co-investment by the holder in the operational companies in question, as this would have the effect of increasing the indirect holding (via the OPC and outside the OPC) to over 10% !

Debts of companies owning real estate assets

There are a number of restrictions on the deduction of debts when valuing companies that own real estate assets, including debts to taxpayers, their family members or to companies that they control (which may de facto affect all intragroup debts). These restrictions on the deduction of certain liabilities will not apply if the taxpayer can demonstrate that they are not primarily motivated by tax purposes.

In this regard, the tax authorities confirm (fortunately) that:

  • First, this rule only applies to taxpayers who are also direct or indirect lenders and not to the other shareholders in the company in question, which seemed to be the position of the legislation, but had remained uncertain up until now.


  • The concept of “primarily for tax purposes” is wider than the concept of “solely for tax purposes” within the meaning of Article L. 64 of the Tax Procedures Guide (LPF), relating to the abuse of tax law (BOI-CF-IOR-30). It is assessed against the IFI burden on the taxpayer. 
    Thus the fact that the debt had been contracted before IFI was introduced on 1 January 2018, or on a date immediately prior to that when the tax household became liable for such tax, may be used to show that the aim was not primarily for tax purposes (BOFIP-PAT-IFI-20-30-30-20180608, no. 240).

♦ Except in special cases, liabilities incurred before 2018 should therefore be deductible without any restriction (apart from those whose aim is to finance, directly or indirectly, the acquisition of real estate from the taxpayer).


  • As regards loans made by the family group to a company held by the taxpayer for the acquisition of taxable real estate, the principle of non-deductibility will not apply if the taxpayer can demonstrate that the loan was contracted under normal conditions (Article 973 II 3° of the FTC). On this point the legislation in particular mentions the effective nature of the repayments; the FTA further specify: “The normal nature of the loan conditions will be assessed in particular with regard to usual banking practices in the field concerned (BOFIP, cited above, no. 270).

♦ In case of doubt, it may be worthwhile to benefit from bank offers similar to the family loan being made in order to demonstrate the normal nature of the loan. It will be recalled that invoking this notion (thin capitalisation) has led to widespread litigation in other areas!


Tax practice will undoubtedly highlight numerous other questions and difficulties to which we will regularly attempt to return... and best of luck with your first IFI declaration!

By Pierre Appremont