Intégration Fiscale (France): Tax Consolidation for Acquisitions

Intégration fiscale is France's tax consolidation regime, allowing a parent company and its 95%+ owned subsidiaries to file a single consolidated tax return. Established under Articles 223 A through 223 U of the Code Général des Impôts, the regime is used by over 30,000 French corporate groups. For search fund entrepreneurs acquiring businesses through a holding SAS in France, this regime is essential for making acquisition debt interest tax-deductible against operating profits.

• Ownership threshold: Parent must hold 95%+ of the subsidiary's capital and voting rights (directly or indirectly)
• Opt-in regime: The parent company must elect to form the integrated group (option is irrevocable for 5 years)
• Consolidated result: All group members' profits and losses are combined into a single taxable result at the parent level
• Tax payment: The parent company is the sole taxpayer for the entire group
• Intragroup neutralization: Certain intragroup transactions (dividends, provisions, write-downs on subsidiary shares) are neutralized

The core benefit for search fund acquisitions:

1. The holding SAS borrows €2M from Bpifrance and commercial banks to acquire the target
2. The holding SAS has €100K+ in annual interest expenses but no operating income
3. The target company generates €400K in annual taxable profit
4. Without intégration fiscale: the holding has no income against which to deduct its interest; the target pays full tax on €400K
5. With intégration fiscale: the group's consolidated result is €400K − €100K = €300K. Tax is paid on €300K only.
6. Annual tax savings: approximately €25,000 (at the current 25% French corporate tax rate on the €100K deduction)

• Parent must be a French-taxable company (SAS, SA, or SARL subject to IS)
• Parent cannot itself be 95%+ owned by another French company (must be the ultimate French parent)
• Subsidiaries must be French-taxable companies
• All group members must have the same fiscal year-end
• The election must be filed before the start of the first consolidated fiscal year

• Rabot rule: A 1% add-back applies to dividends received within the group (effectively, 1% of intragroup dividends is taxable)
• Interest limitation (30% EBITDA): Even within intégration fiscale, interest deduction is capped at 30% of the group's EBITDA (with a €3M safe harbor)
• Anti-abuse (Amendement Charasse): If the holding borrows to acquire shares from a related party, the interest may be partially non-deductible. The DGFiP applies this rule broadly, so any transaction with a shareholder or their family must be carefully structured
• Entry/exit: Companies joining or leaving the group trigger specific recapture and adjustment mechanisms
• Recent reform: The 2019 Finance Act modernized the intégration fiscale regime to align with the EU Parent-Subsidiary Directive, eliminating some double taxation on cross-border dividends while tightening anti-abuse provisions

1. Create the holding SAS (if not already existing)
2. Complete the acquisition of 95%+ of the target's shares
3. File the option for intégration fiscale with the tax administration (Direction Générale des Finances Publiques)
4. Align fiscal year-ends if different
5. Implement internal conventions between group members for tax charge allocation

• Intégration fiscale enables the holding company's acquisition debt interest to offset the target's operating profits
• Requires 95%+ ownership and same fiscal year-end across all group members
• The election is irrevocable for 5 years, plan carefully before opting in
• Interest deduction is capped at 30% of consolidated EBITDA with a €3M safe harbor
• Work with a French expert-comptable and fiscaliste to set up and maintain the consolidated group

The election must be filed before the start of the first consolidated fiscal year, so timing depends on when you close the acquisition. If you close mid-year, you may need to wait until the following fiscal year to begin consolidation. Work with your expert-comptable to align the holding company and target’s fiscal year-ends before filing.

You cannot use intégration fiscale. The 95% threshold applies to both capital and voting rights. If a seller retains more than 5% (for example, through an earn-out or retained minority stake), you will not qualify for tax consolidation until you acquire the remaining shares. This is a critical consideration when structuring deals with minority seller reinvestment.

The election is irrevocable for 5 fiscal years. Early termination triggers recapture mechanisms and potential tax adjustments. However, if the ownership drops below 95% (for example, through a partial sale), the subsidiary automatically exits the group. If you sell the entire subsidiary, the remaining group can continue. Consult a fiscaliste before making any changes to group composition.