The Dutreil pact allows for the transfer of a business while being taxed on only 25% of its value. In return, a six-year holding period is required. A poorly timed sale, exceeding a threshold, or a business going astray, and the tax savings are retroactively lost. This guide details the conditions of the scheme, provides a numerical example of a Dutreil pact based on a €5 million transfer, and outlines the five most costly pitfalls. The pact remains the primary tool for business transfers exempt from inheritance tax in France.
Key takeaway: the Dutreil agreement, provided for in Articles 787 B and 787 C of the French General Tax Code, exempts 75% of the value of shares or business assets transferred by gift or inheritance. In exchange, the shares must be held for a minimum of six years and the eligible business activity must be maintained throughout this period.
What the Dutreil pact saves, in euros
A 62-year-old executive transfers a machining company valued at €5,000,000 to his only son. Without a Dutreil agreement, the €100,000 allowance for direct descendants applies, followed by the progressive scale of inheritance tax, the highest bracket of which reaches 45%. Taxable base: €4,900,000. Tax due: approximately €2,100,000.
With a Dutreil agreement, the partial exemption reduces the tax base by 75% before any other calculation. The value used is €1,250,000. After a €100,000 allowance and then applying the tax brackets, the taxes due amount to approximately €355,000. The difference exceeds €1,700,000. This example demonstrates the significant tax advantage involved.
If the gift is made before the donor turns 70 and involves full ownership, an additional 50% reduction in transfer taxes applies: the tax bill falls below €180,000. This is the only provision under French law that offers such a significant tax advantage for a business transfer.
The conditions of the Dutreil pact in 2026
What activities are eligible for the Dutreil pact?
The scheme applies to companies engaged in industrial, commercial, craft, agricultural, or professional activities, as well as to sole proprietorships carrying out the same activities. The 2024 Finance Act clarified the definition of commercial activities by referring to Articles 34 and 35 of the General Tax Code. Purely civil activities such as private wealth management are excluded: managing one's own securities portfolio or real estate holdings does not qualify for the scheme.
A company carrying out both operational and civil activities remains eligible if the operational activity is predominant. Predominance is assessed through a set of indicators: the company's history and purpose, allocation of personnel and material resources, share of assets and premises, turnover structure, and specific operating conditions.
A standard property management SCI (Société Civile Immobilière) is not eligible. An SCI can become eligible if it engages in property trading or development, or if it is part of a managed operational unit.
Active holding companies and the Dutreil pact
The 2024 Finance Act enshrined in law that an active holding company is eligible for the Dutreil pact. It is defined as a company whose main activity consists of actively participating in the management of the policy of its group, made up of controlled subsidiaries carrying out an eligible activity, and where applicable, providing them with administrative, legal, accounting, financial or real estate services.
A holding company that actively manages its subsidiaries qualifies for the scheme. A purely asset-holding company that simply collects dividends is excluded. This management activity must be documented through agreements, minutes, and strategic committee reports. This is the first point examined during an audit.
The Dutreil pact ownership thresholds
The collective commitment must cover a minimum percentage of the capital, and these thresholds distinguish between two types of rights. For unlisted companies, the commitment covers 17% of financial rights and 34% of voting rights. For listed companies, the threshold is 10% of financial rights and 20% of voting rights.
Both conditions are cumulative and must be met throughout the duration of the collective commitment, not just at the time of its signing. A capital increase, a transfer between partners, or a restructuring can cause the company to fall below the threshold without anyone noticing.
The two conservation commitments and the six-year timeline
The benefit of the exemption is based on two successive commitments, often confused even though they do not have the same duration, the same signatories, or the same effects.
The collective conservation commitment is signed by the donor or the deceased and at least one other partner, for a minimum period of two years from the date of registration of the deed. It covers collective conservation and compliance with ownership thresholds.
The individual conservation commitment is undertaken by each donee, heir or legatee for four years from the end of the collective commitment. The total cumulative duration reaches a minimum of six years.
Three points are important. The collective commitment can be made by a legal entity directly holding the share. In the case of divided ownership, it must be signed jointly by the usufructuary and the bare owner. When the shares are jointly owned property, the signing spouse who is a shareholder also binds the non-signing spouse, who is deemed a signatory for the purposes of Article 787 B of the French General Tax Code (CGI).
The two-year period may be extended expressly or tacitly. Individual commitments are made on the date of transfer of the securities, even if they only begin to run at the end of the collective period.
One requirement runs concurrently throughout the entire period: maintaining the eligible activity. The 2022 amending finance law enshrined this in law, following a ruling by the Court of Cassation on May 25, 2022, which had challenged it. A company that ceases its operational activity during the six-year period loses the benefit of the scheme, even if the share price remains unchanged. Finally, a manager must hold a management position within the company during the collective commitment period and for three years following the transfer.
The 5 mistakes that cause you to lose your tax exemption
Mistake 1: transferring one's shares to another signing partner
This is the most costly and counterintuitive mistake. In a ruling dated November 29, 2023, the Court of Cassation held that the transfer by a donee of the securities received, during the collective commitment period and even to another signatory partner, makes it impossible to fulfill their individual commitment to retain the shares. The exemption they received is therefore revoked.
The partners who signed the collective agreement may transfer or gift the shares they held before the gift to each other. This option is not available for shares already transferred to a donee subject to an individual agreement. Since 2019, Article 787 B, e ter of the French General Tax Code (CGI) allows for a partial transfer of the received shares to another signatory partner, with the challenge then limited to the shares transferred.
Mistake 2: allowing the detention structure to cross a threshold
The thresholds of 17% of financial rights and 34% of voting rights for unlisted companies, or 10% and 20% for listed companies, must be continuously respected. A reserved capital increase, the entry of an investor, a gift outside the shareholders' agreement: each of these operations can tip the balance. The recommended practice is to recalculate the thresholds before each capital transaction for six years.
Mistake 3: Treating the holding company as an active shareholder without providing proof
A holding company described as an active operator in the deed, but which provides no evidence of actual management, will not stand up to scrutiny during an audit. Management agreements, strategic committee minutes, invoices for actual services rendered to subsidiaries: the case must be built before the transfer, not at the time of restructuring.
Mistake 4: Forgetting the reporting obligation
The collective commitment agreement must be formalized in writing and registered. The two-year period begins from the date of registration, not the date of signature. Upon donation or inheritance, the collective agreement and individual commitments must be provided. For six years, the firm must be able to demonstrate the continuation of its eligible activity and compliance with the thresholds.
Mistake 5: not combining the pact with other transmission tools
The Dutreil agreement can be combined with the direct line allowance, the 50% reduction for outright gifts before age 70, and is linked to a shared gift that fixes the value of the assets on the date of transfer. Treated in isolation, it leaves money unsold. Treated as a component within a structure of shared gifts, dismemberment of ownership, and acquisition holdings, it significantly alters the scale of the transaction.
Dutreil agreement and shared gift: the combined arrangement
The Dutreil agreement provides its full tax advantage when it is part of a shared gift. The two tools do not serve the same purpose.
A gift-partition freezes the value of the assets on the day of transfer. Twenty years later, if the business has tripled in value, the other heirs cannot demand a redistribution. It's the best protection against family conflict.
The Dutreil agreement, however, reduces the taxable base by 75%. It says nothing about the division between heirs.
Combined, they solve both problems at once: tax costs and family harmony. For unlisted companies, this is the most common approach. A business owner preparing for succession would be wise to consider both aspects together from the outset.
Three key points to consider. The donor must retain the ability to hold a management position if the arrangement so provides. The value determined on the date of transfer must be supported by a sound valuation. And the holding commitments remain in effect for six years, regardless of the distribution.
What the reform under discussion could change
The Dutreil pact is the subject of intense debate. The Court of Auditors has criticized its cost and targeting, amendments have been tabled in the National Assembly during budget discussions, and several proposals are circulating: capping the tax-exempt base, extending retention periods, and tightening the definition of eligible activities. Nothing has been voted on yet, but the system is more advantageous today than it will be tomorrow.
For a business owner planning a transfer of ownership within three to five years, the question is no longer whether a Dutreil agreement is necessary, but rather when to register it. A collective agreement signed and registered today secures the current terms of the agreement for the next six years.
Frequently asked questions about the Dutreil pact
Does the Dutreil agreement apply to a French real estate investment company (SCI)? Not to a standard SCI used for asset management. An SCI engaged in property trading or real estate development may be eligible, as may an SCI integrated into a larger, operational group. The assessment is based on supporting documentation.
Can a Dutreil agreement and a shared gift be combined? Yes, and it's often the most effective arrangement. A shared gift fixes the value of the assets on the date of the deed and prevents future conflicts between heirs, while the Dutreil agreement reduces the taxable base by 75%.
What happens if the donor dies during the collective commitment period? Death does not interrupt the arrangement. The heirs can continue the existing collective commitment and also take out their individual commitments.
What is the actual holding period for the securities? A minimum of six years: two years of collective commitment, then four years of individual commitment. In practice, it takes longer, as the collective commitment is often signed several months before the transfer.
Can a holding company with no employees be considered an active manager? It's not impossible, but it's more difficult to prove. Active management implies active and documented participation in guiding the group's policy. The complete absence of its own resources weakens this qualification.
What are the risks if the Dutreil agreement is challenged? The tax due would have been reassessed for the amounts that would have been owed without the exemption, plus late payment interest. On a transfer worth several million euros, this adjustment amounts to hundreds of thousands of euros, hence the importance of annual monitoring of the holding commitments.
Securing a Dutreil agreement
A Dutreil agreement is prepared before the transfer and monitored for six years. Holding structure, qualification of the activity, drafting of commitments, articulation with the gift-sharing, annual monitoring of thresholds: each step is documented.
The corporate law department at Arst Avocats assists business leaders throughout this entire process, from the initial eligibility audit to the implementation of commitments, and including ongoing monitoring of obligations. If you wish to establish a Dutreil agreement or verify the legality of a situation related to such a scheme, please contact us.
Article written by Olivier Paquereau
