Dutreil pact: how excess cash can threaten the exemption

I. The Dutreil pact and the predominant operating activity

A. The mechanism of the 75% exemption and its tightening in 2026

The Dutreil pact, codified in article 787 B of the French General Tax Code (CGI), allows the exemption from gratuitous transfer duties, up to 75% of their value, of the shares or interests of companies transmitted by gift or inheritance, subject to holding undertakings and a management function. The benefit of the regime presupposes a collective undertaking to hold the securities for a minimum of two years, in force at the date of the transmission, relayed by an individual holding undertaking taken by each heir or donee, as well as the exercise of a management function throughout the collective undertaking and for the three years following the transmission (CGI, art. 787 B). The advantage is considerable: on a company valued at several million euros, the 75% allowance reduces the taxable base accordingly and is often the condition of the company's survival of its transmission.

The 2026 Finance Act tightens the regime. Article 8 of Law no. 2026-103 of 19 February 2026 on finances for 2026 amends article 787 B on two points, applicable to transmissions occurring on or after 21 February 2026. First, the individual holding undertaking is extended from four to six years, raising the minimum cumulative holding period to eight years. Second, certain so-called sumptuary assets are now excluded from the exemption base, a mechanism we detail below (II.B). The tax authorities published their guidelines on these measures on 10 August 2026 (BOFiP, BOI-ENR-DMTG-10-20-40-10, 10 August 2026).

This tightening extends the clarification made by Law no. 2023-1322 of 29 December 2023 on finances for 2024 (art. 23), applicable to transmissions occurring on or after 17 October 2023, which expressly excluded from the eligible activities the management by the company of its own movable or immovable assets, and which wrote the definition of the animating holding into the statute. The pact is reserved for genuinely operating companies, and the control of the real nature of the activity now rests on a complete statutory basis.

B. The condition of predominant operating activity

To open the right to the pact, the company must carry on, predominantly, an industrial, commercial, artisanal, agricultural or professional activity. This condition of predominance is assessed in the light of a body of indicia determined by the nature of the activity and the conditions of its exercise (CE, 23 January 2020, no. 435562; Cass. com., 14 October 2020, no. 18-17.955, both cited by the tax authorities in BOFiP, BOI-ENR-DMTG-10-20-40-10, § 20). The court takes into account the nature of the activity, the conditions of its exercise, the turnover it generates, the distribution of assets on the balance sheet and the human resources mobilised. None of these criteria is, in principle, exclusive of the others, and the court proceeds to an overall assessment to determine whether the eligible activity genuinely prevails over any civil activity of wealth management.

The growing weight of the asset criterion. While the assessment is in principle global, recent case law has highlighted the sometimes decisive weight of the composition of the assets. A company whose turnover comes from an eligible activity, and whose manager devotes most of their time to that activity, may nonetheless be regarded as predominantly carrying on a civil activity where its assets are mainly composed of elements not necessary to the operation. The global method therefore does not exclude that a single criterion, that of the assets, carries the decision where it reveals a manifest disproportion between the means allocated to the operation and those that are not. This is the whole stake of excess cash.

II. Excess cash, sumptuary assets, animation: three threats to the exemption

A. The excess cash that tips towards civil activity

The most insidious threat weighs on prosperous companies. The Cour de cassation so held on 28 May 2026 (Cass. com., no. 25-12.612 and no. 25-12.610, F-D, Parasol Production): a company may be regarded as predominantly carrying on a civil activity of wealth management where its cash and investments, although derived from its operating activity, reach an importance such that they are no longer necessary for the exercise, maintenance or development of that activity. In those cases, an audiovisual production company whose turnover came almost entirely from that commercial activity saw the exemption challenged on the ground, essentially, that its cash and shareholdings had come to represent 90% of its gross assets, the cash alone representing, in the first case (no. 25-12.612), between seven and nine times the annual turnover, more than fifteen times the short-term debts and between fifteen and twenty-seven times the annual profit. The judgments were rendered on the basis of article 885 I bis, then applicable to the former wealth tax, but the predominance criterion they apply is worded in the same terms as that of article 787 B and is transposable to it.

The commercial origin of the cash does not suffice. The lesson is stern and counter-intuitive. The Court is careful to recall that the fact, for a company, of building up cash from undistributed profits and investing it does not, in itself, characterise an activity distinct from the one those profits derive from. But what matters is the current allocation of the asset: cash intended neither to cover operating needs, even future ones, nor to maintain or develop the activity is regarded as a wealth-management asset, even though it is the fruit of commercial success. The solution echoes the one laid down for holdings: the Cour de cassation held, on 11 October 2023 (no. 21-24.761), that the cash of a holding company cannot be presumed to be allocated to the animation of its group, and that the mere invocation of investment projects not yet implemented at the taxable event does not suffice to give it a professional character.

B. The statutory sumptuary-asset exclusion under the 2026 Finance Act

To the case-law risk of tipping into civil activity, the legislature now adds an exclusion from the exemption base. For transmissions occurring on or after 21 February 2026, the exemption no longer applies to the fraction of the value of the shares or interests representing assets that are not exclusively allocated to the operating activity for at least three years before the transmission (or, failing that, since their acquisition) and until the end of the individual holding undertaking (CGI, art. 787 B, as amended by Law no. 2026-103 of 19 February 2026, art. 8). The assets concerned are those used for hunting or fishing, passenger vehicles, yachts, pleasure boats and aircraft, jewellery, precious metals and works of art, collectors' items or antiques, racehorses and competition horses, wines and spirits, as well as dwellings and residences.

A prorated exclusion that reaches through subsidiaries. The exclusion also applies to the fraction of the value of the securities representing the same assets held by a subsidiary controlled, directly or indirectly, within the meaning of 2° of III of article 150-0 B ter of the CGI, the allocation condition then being assessed at the level of the subsidiary holding the assets. The tax authorities detail a prorated calculation, worked up level by level where sub-subsidiaries are involved (BOFiP, BOI-ENR-DMTG-10-20-40-10, 10 August 2026, § 400 et seq.). Two observations are called for. First, cash does not appear on the statutory list of sumptuary assets: the new mechanism therefore does not replace the case law on excess cash, it is layered on top of it. Second, the category of dwellings and residences directly targets the patrimonial real estate lodged within family groups, including where it is held through subsidiaries, which requires a precise inventory before any transmission.

C. The animating holding: effective, proven and continuous animation

At the head of family groups, the animating holding is assimilated to an operating company and opens the right to the Dutreil pact as well as to the other preferential regimes, including the enhanced holding-period allowance applicable to certain disposal gains. Its definition is now written into article 787 B of the CGI: the company which, beyond the management of a portfolio of participations, has as its principal activity the active participation in the conduct of the policy of its group made up of companies controlled directly or indirectly. But the animation must be real. The Cour de cassation clarified the criterion on 11 October 2023 (Cass. com., no. 21-24.761, together with, of the same day, nos. 21-24.760, 21-24.762 and 21-24.763): the principal character of the animation activity must be found where the market value, at the date of the taxable event, of the holding's assets allocated to that activity, including the shares of the animated subsidiaries, the assets made available to them or allocated to the services delivered within the group and the cash allocated to the group's activity, represents more than half of the holding's total assets. This animation is not presumed: it is proved by a body of indicia, the Court expressly approving not relying solely on accounting data at the date of the taxable event. The tax authorities have reproduced this ruling word for word in their guidelines (BOFiP, BOI-ENR-DMTG-10-20-40-10, 10 August 2026, § 55), which further accept, under strict cumulative criteria, that buildings let exclusively to a controlled animated subsidiary, directly or through a controlled property subsidiary, may be attached to the animation.

The requirement of continuity from inception. For the benefit of the enhanced allowance, the statute requires that the activity conditions be assessed continuously from the date of the company's creation (CGI, art. 150-0 D, 1 quater, B, 2°), which presupposes, for a holding, an effective and continuous animation from inception. The courts apply this rigorously: a company set up to manage family assets, and become animating thereafter, does not meet this condition, and guarantees granted to subsidiaries, an intragroup loan or a common remunerated management do not suffice, on their own, to establish an effective animation since the creation (CAA Lyon, 16 April 2026, no. 24LY02196). The proof of animation, over time and through concrete acts, is therefore decisive.

III. Securing the transmission, including across borders

A. The international dimension of the transmission

The transmission of a family business frequently has an international dimension, where some heirs or donees reside abroad, or where the transmitted group holds subsidiaries outside France. The Dutreil pact is not, in itself, reserved for residents: it may benefit a transmission to non-resident heirs, provided the substantive conditions are met and France has the right to tax the transfer. It is precisely this last point that calls for specific analysis, because the territoriality of gratuitous transfer duties and the tax treaties concluded by France in this area determine the extent of the right to tax and the articulation with any taxation in the heir's State of residence.

Articulating the pact with inheritance treaties. Where the deceased or donor, the heir or the transmitted assets present a foreign element, the benefit of the Dutreil pact must be articulated with the rules of territoriality of transfer duties and with the applicable treaty, where one exists, in matters of inheritance and gifts. The French treaty network in this area is more limited than for income tax, which increases the risk of double taxation and requires careful analysis. The coordination between the French partial exemption and the tax treatment in the heir's State of residence is a point too often neglected, which can reduce, or even cancel, the expected advantage of the pact. The extension of the cumulative holding period to eight years, moreover, increases the likelihood that a change of residence will occur during the undertakings, which must be anticipated.

B. Practical recommendations: cleanse, document, anticipate

Address excess cash upstream. The first precaution is to examine, well before the transmission, the composition of the company's assets and to identify any excess cash not allocated to the operation. Depending on the case, a prior distribution, a reinvestment in the activity or a reorganisation may restore the predominance of the operating activity. These operations must be carried out in good time, and not in the urgency of a transmission, because the predominance is assessed at the taxable event and cannot rest on hypothetical or subsequent investment projects.

Inventory sumptuary assets and document their allocation. The new statutory framework requires a second reflex: identifying, in the transmitted company and in each of its controlled subsidiaries, the assets appearing on the statutory list (vehicles, boats, aircraft, works of art, dwellings and residences, in particular), verifying their exclusive allocation to the activity over the three years preceding the transmission, and organising the proof of that allocation until the end of the individual undertaking. An unallocated asset does not prevent the transmission: it increases its cost in proportion to its value, which may justify a disposal or a prior removal from the balance sheet.

Document animation over time. For groups headed by an animating holding, it is indispensable to build, from inception and continuously, the proof of effective animation: animation agreements actually executed, records of the strategic decisions taken at the holding level, traceability of the services rendered to the subsidiaries. An alleged but undocumented animation, or one appearing belatedly, does not withstand audit, and additionally forfeits the enhanced allowance where continuity since creation is lacking. Beyond this, we recommend anticipating the transmission through a full audit of eligibility for the pact and, where the situation has a foreign element, through an analysis of the territoriality of transfer duties and the applicable treaties. We assist families in designing and securing their transmissions, in France and internationally.