Proposed Legislation on French Tax Treatment of Partnerships: France Would Abandon its unique “Semi-Transparency” Regime and Adopt a Transparency Regime

Sullivan & Cromwell LLP - November 19, 2010

The French Government released on November 17, 2010 proposed legislation that would totally reshape the tax treatment of French and non-French partnerships. The principle set forth in the draft legislation is that transactions realized by a partnership would be deemed to be realized by the partners, as opposed to the current hybrid treatment of partnerships (so-called “semi-transparency”). This reform would, in particular, extend the scope of the French participation-exemption regime to dividends received and capital gains realized by partnerships, and would change the territoriality rules applicable to partnerships. The new legislation is included in the Amended Finance Bill for 2010, which should be enacted by the end of this year, and would be effective as of January 1, 2012.