Transfer of Shares in a SCI: When Advances Escape Registration Duties

Imagine: you are a shareholder of a family SCI in Vitry-le-François. With your brother and sister, you bought a rental property ten years ago. To finance renovations, each of you paid €20,000 into a current account. Today, you want to sell your shares to your nephew. The notary tells you that there is a registration duty of 4.80% on the total value of the shares, including the advances. A hefty bill, isn't it?

This crucial question still divides owners and the tax authorities. Are the sums paid by shareholders to their SCI contributions subject to taxation, or simply repayable advances? The Court of Cassation ruled clearly in 1988: it all depends on the articles of association. If the payments are characterised as advances in current accounts, not incorporated into the share capital, their transfer is not subject to the 4.80% duty.

In this article, we analyse the judgment of 22 March 1988 (no. 86-15.264) and its practical consequences for you. How should you draft your articles of association to avoid a tax reassessment? What should you do if you are already in a disputed situation? Follow the guide.

The facts: a story that happens every day

The SCI Boulogne, formed in the 1970s, had as its object the acquisition and management of a building. Its articles of association, drafted in accordance with the law of 16 July 1971 (law on civil companies), provided that the shareholders would have to make payments proportionate to their social rights, in the form of advances, to enable the company to achieve its object. These sums were not incorporated into the share capital and did not entitle the holder to the allocation of new shares or an increase in the nominal value of existing shares.

A few years later, one of the shareholders transferred his shares to a third party. The tax authorities then demanded payment of the 4.80% registration duty on the amount of the advances paid, considering that they were an element of the value of the shares transferred. The shareholder contested this, arguing that these sums were repayable advances, distinct from capital. The case was brought before the court, which found in favour of the shareholder. The authorities appealed to the Court of Cassation.

Plot twist: the Court of Cassation dismissed the appeal and upheld the judgment. It held that the lower courts had correctly analysed the articles of association: the payments were advances, not contributions, and therefore did not fall within the basis of assessment for the transfer duty. A victory for the taxpayer, but one that rests on exemplary drafting of the articles of association.

The reasoning of the court — broken down

In its judgment of 22 March 1988, the Court of Cassation relied on two pillars: respect for the will of the parties and the strict interpretation of tax provisions. In matters of registration duty, Article 726 of the French General Tax Code (then in force) subjects transfers of shares in unlisted companies to a duty of 4.80%. However, this duty is calculated on the real value of the shares, which includes in particular capital contributions and reserves. On the other hand, advances in current accounts, which are debts of the company to the shareholder, do not form part of the company's assets and are therefore not transferred upon the transfer.

The judges recalled a fundamental principle: agreements lawfully entered into have the force of law for those who have made them (Article 1134 of the French Civil Code, now Article 1103). Here, the articles of association clearly characterised the payments as "advances" and stated that they were not incorporated into the capital. The tax authorities could not therefore reclassify these sums as contributions. The decision confirms consistent case law: in the presence of clear articles of association, the court must not distort them.

This case also illustrates a key principle of tax law: tax can only be based on legally characterised facts. If the articles of association say "advance", the tax authorities must respect this, unless they can demonstrate an abuse of law. Here, there was no such abuse.

What this means for you — practically

For landlord owners and property investors, this decision is a breath of fresh air. Let's take the example of Tinqueux: you are a shareholder of a SCI holding a rental property. You paid €50,000 in advances to finance a roof. If you transfer your shares, these €50,000 will not be subject to the 4.80% duty (a saving of €2,400). But be careful: this assumes that the articles of association expressly mention the repayable advance nature.

For purchasers of shares, caution is required. If you buy shares in a SCI, check the nature of the sums recorded in the current account. They may be repaid by the company after the transfer, which reduces the actual acquisition price. This is a point to negotiate with the seller.

For property professionals (notaries, lawyers, accountants), this judgment highlights the importance of drafting the articles of association. A simple mention of "repayable advances" can avoid costly disputes. In the event of a tax audit, the characterisation of the sums is the first line of defence.

If you are in this situation, you must keep all evidence of the payments (bank statements, general meeting decisions) and have your articles of association checked by a specialist lawyer before any transfer.

Four tips to avoid this type of dispute

• Draft precise articles of association: From the creation of the SCI, have articles of association drafted that clearly distinguish capital contributions from current account advances. Mention that these advances are repayable at the shareholder's request, with or without fixed interest.
• Document each payment: For each current account contribution, draw up a general meeting decision or a current account agreement signed by all shareholders. This will prove the nature of the sum in the event of an audit.
• Avoid confusion in the accounts: Record the advances in a "shareholder – current account" account separate from the capital account. Do not confuse them with reserves or undistributed profits.
• Consult a lawyer before a transfer: Before signing a share transfer deed, have the articles of association and the accounting situation reviewed by a property lawyer. A preliminary consultation (€45 with Maître Zakine) can save you a tax reassessment of several thousand euros.

Further reading: related case law and developments

This decision is part of a line of case law favourable to taxpayers. As early as 1981, the Court of Cassation had ruled (judgment no. 79-14.752) that current account advances do not constitute a taxable asset element upon the transfer of shares, provided they are repayable. More recently, in 2015, the Paris Administrative Court of Appeal confirmed this principle in a case where the articles of association were less clear, but the accounts established the nature of the advance.

Conversely, the tax authorities regularly attempt to reclassify advances as disguised contributions, particularly when the articles of association are ambiguous or when the payments are proportionate to social rights without a repayment clause. The current trend is therefore towards increased vigilance: the courts require solid evidence of the parties' intention.

For the future, the 2023 Finance Act did not change the regime of registration duties on share transfers. However, the digitalisation of deeds and the automated control of declarations could increase the risk of reassessment for poorly drafted SCIs. Prevention is better than cure.

Frequently asked questions

Can I deduct the interest paid on my shareholder current account? Yes, if the articles of association so provide and the rate is in line with the market (usury rate). Such interest is deductible from the SCI's taxable profit.

What should I do if the tax authorities challenge the characterisation of an advance? You can initiate a contentious claim procedure within two years of the notification of the reassessment. A specialist lawyer will help you prove the reality of the advances (articles of association, accounts, general meeting decisions).

What are the time limits for transferring SCI shares? There is no legal time limit, but the transfer must be registered with the tax office within one month of the deed. The registration duty is due on the day of the transfer.

Does the 4.80% duty apply if I sell my shares at a price below their real value? Yes, the tax authorities may reclassify the sale as a gift and apply higher duties. It is advisable to justify the price with a professional valuation.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of procedure — and often much more. Book an appointment →