Dutreil Pact

Subject to compliance with several conditions, it provides for a partial exemption of up to 75% of the value of the transferred shares or business interests when calculating gift and inheritance tax. The scheme also applies, under specific rules, to sole proprietorships. 

This mechanism is primarily based on shareholding retention commitments, the continuation of an eligible business activity, and, in the case of companies, the effective exercise of a management role within the business. It is a key tool for planning the transfer of professional assets.

Objectives of the Dutreil Pact

The Dutreil Pact may serve several purposes: 

• Reducing the tax burden associated with the transfer of a business.
• Supporting business continuity and the long-term sustainability of family-owned companies.
• Preparing for the succession of the business owner.
• Gradually organizing the company's governance structure.
• Anticipating the transfer of professional assets to future generations.

Main Eligibility Requirements

The Dutreil Pact at the Heart of Business Succession Planning 

In  Private Banking, the Dutreil Pact forms part of a broader wealth-planning strategy focused on business succession. It may be combined with:

• The creation or use of a family holding company, subject to eligibility requirements.
• A gift-sharing arrangement (donation-partage), either in full ownership or bare ownership.
• The organisation of family governance.
• Preparing future generatuins to take over the business.
• The gradual diversification of the business owner's personal wealth.

A coordinated approach involving the client's legal and tax advisers helps anticipate the tax, legal and family-related issues associated with the transfer.

Benefits of the Dutreil Pact

• Partial exemption of 75% of the value of the transferred shares or interests.
• Potential reduction of gift tax liabilities.
• Greater stability of family ownership and business continuity.
• Easier intergenerational transfer of the business.
• A long-term wealth planning tool.

Limitations and Risks to Consider

• Strict compliance with legal requirements, ownership thresholds, reporting obligations, retention periods and business eligibility criteria.
• Risk of losing the tax benefits if commitments or other conditions are not fulfilled.
• The need for prior legal and tax analysis.
• The importance of planning the transfer sufficiently in advance and ensurinf ongoing monitoring.