wines and spirits newsletter n°6 - pwcwines and spirits newsletter. vins et spiritueux – la...

May 2015

Wines and Spirits Newsletter n° 6

Contents

Editor’s message 2

Opportunities offered by digital technology in the wines and spirits sector in France 3

Vinexpo 2015: Conference PwC 8

Funding the development of French wine companies 11

Social security contributions of managers of farming companies: status and current issues 23

Developments regarding SAFERs and structure control 28

News on successions and gifts 32

Editor’s message

Some see the economic activity of the wines and spirits sector as being inherently conventional because it is part of the agrifood sector. But that is a narrow view.

The sector is constantly faced with new challenges in commercial and technological terms, not to mention on the regulatory front.

In our opinion, the latest issue of our Wines and Spirits Newsletter offers an obvious reminder of this fact.

We hope you will enjoy reading some of the articles illustrating this aspect.

The list includes the opportunities offered by digital technology in the wines and spirits sector.

Similarly, it is important to have a good grasp of the subsidies that allow players in this sector to fund their modernization efforts, be it in production or marketing.

On the regulatory front, the news flow is also abundant, and sometimes hard to take in.

This is the case for the complexities of the social security liabilities of managers of agricultural companies. Though seemingly simple, the issue is actually shifting and complex, due notably to the impact of holding companies.

We also provide information on the new Future of Agriculture, Food and Forestry Act, which once again adds, overlays and overlaps new rules and old. Industry participants need to be aware of these developments in order to confidently and effectively negotiate their path through the maze of our regulations.

We hope you will enjoy this issue of the Wines and Spirits Newsletter.

3Vins et spiritueux – La lettre N°6

Opportunities offered by digital technology in the wines and spirits sector in France

In first half 2014, the value of export sales of French wines and spirits fell by 7.3% compared with the same period in 2013, on the back of a poor harvest, foreign competition and regulatory change, notably in China.

The key drivers of future growth are innovation and the digital economy. In 2014, e-commerce already accounted for 10% of total wine sales, with projected annual growth of over 20% in the coming years. But the digital economy is more than just online sales. It represents the lion’s share of opportunities available across the entire value chain.

With developments such as drones, Uber, and – in the not-so-distant future – driverless cars, the New Economy is disrupting entire swathes of established industries. Our aim is to discuss the opportunities offered by the digital economy in the wines and spirits industry in France from four angles: (i) operations, (ii) distribution channels, (iii) establishing and maintaining customer relationships, and (iv) new business models.

Digital technology to enhance operations and production

Digital and information technologies strongly impact the value chain, representing a key factor in whether or not companies gain a competitive advantage. In wines and spirits, they offer opportunities in operations, at each stage of production.

Weather databases, coupled with real-time observations by GPS-equipped drones, promise to revolutionize precision farming. The principle of “prescriptive planting,” for instance, currently emerging in the United States, is used to determine the most appropriate crop depending on the location of the field, the weather and the seasons. To enter this field, Monsanto acquired the Climate Corporation weather database for nearly $1 billion in 2012. Monsanto hopes to use the data to enrich the Fieldscripts software solution it offers to farmers, allowing them to calculate varied seeding rates that are optimized for each part of a given field.

In addition to the management principles underlying precision farming, all aspects of wine production – from grape growing to winemaking – are liable to be impacted by digital innovations, the most likely of which include the following:

OPPORTUNITIES OFFERED BY DIGITAL TECHNOLOGY IN THE WINES AND SPIRITS SECTOR IN FRANCE

4 Vins et spiritueux – La lettre N°6

• The electronic nose: dogs have alwaysbeen able to detect truffles, and can nowsmell cancers. Recently, electronic noseshave enjoyed technical and commercialdevelopment, notably with the April 2015announcement by Israeli startup Technionthat it was developing a system for detectingstomach cancer by analyzing the patient’sbreath. And in late April 2015, the SouthKorean Ministry of Agriculture selected aEuronext-listed French company, AlphaMOS, to equip the FOODPOLIS technopolewith electronic noses, tongues and eyes.The objective is to improve thecompetitiveness of industrial players inKorean agriculture and fisheries in order topromote their exports. Ultimately, theelectronic nose could also find its place inthe wines and spirits industry, for blendingcomplex liquors or customized spirits;

• Use of wearables: the advent of connecteddevices such as watches, gloves and GoogleGlass-style glasses will make it easier togather key information at every stage of theproduction process, especially during grapeharvests – for example, monitoring theprogress of a harvest and the quality of thegrapes – while keeping the wearer's handsfree to perform specific tasks. Theemergence of the Internet of Thingsbetween now and 2020 could well promotemigration to on-demand and just-in-timeproduction methods. In addition to dataacquisition opportunities, Microsoft’sHoloLens virtual reality helmet, slated forrelease by the end of 2015, aims to replaceall mobile terminals with holograms;

• Physical assistance: “exoskeletons,”namely electronic coverings worn like ajacket to provide assistance in carryingheavy loads, are derived from militaryresearch. They were first marketed in thecivilian area in late 2014 in Japan. For thewine and spirits industry, exoskeletonscould be useful for harvesting work. Thereis little chance of this backbreaking manualactivity being taken over in the near futureby machines with artificial intelligence, soin the meantime, exoskeletons can offermechanical assistance to humans.

The transformation of business practice also raises the issue of training. At a time when the necessary skills are evolving faster than the academic channels that provide them, the French government has adopted a plan to promote MOOCs in the French educational system through a platform called FUN, which stands for “France Digital University”. Agreenium, a French agricultural consortium, launched the first MOOC in agroecology in February 2015. Serious games and virtual worlds are also increasingly being seen as an alternative path to education and training, and are advocated by the French government and ministry of education. Today, the “Farming Simulator 15” video game, which shows what life is like for farmers, is already a bestseller for PCs.

Lastly, the issues of counterfeiting and security are increasingly important in today’s world. It is estimated that counterfeit European spirits represent roughly 25% of imports into China. With the development of digital technology, new solutions are appearing on the market, based on technologies such as RFID and NFC developed by startups including WID and iCave. By monitoring bottles in real time during transportation and storage, these solutions can keep track of bottles produced, and thus detect counterfeits. In the same vein, Inside Secure and Selinko unveiled their CapSeal solution in May 2014, with the aim of solving the problem of refilled bottles. The CapSeal chip is placed near the bottle’s neck and is scanned by a mobile application to detect whether the cap has been tampered with. This solution is a useful addition to RFID monitoring, which for the time being cannot be used to determine whether an authentic bottle has been emptied and refilled.



Getting closer to consumers through new distribution channels

The whole supply chain, not just the production stage, is shifting in line with new consumption patterns now that customers can buy wherever and whenever they want. Logistics services have already adapted to the specific characteristics of wine, such as the need to maintain a stable temperature during shipment and storage. In the field of health care, RFID technology is already used to monitor blood bags and their temperature, when combined with refrigerator solutions such as those designed by Biolog-id. In the future, last-mile logistics may be made a lot easier by the arrival of newcomers like Uber, whose founder, Travis Kalanick, wants to go beyond the taxi industry and reinvent urban logistics. In rural areas, Amazon drones are a real alternative for parcel delivery. In March 2015, the US Federal Aviation Administration allowed Amazon to test its service, named Amazon Prime Air, in real conditions for the first time.

Mobile devices have become an integral part of daily life: in France, almost 40% of internet traffic goes through devices such as mobile phones and tablets. This is prompting the emergence of new ways of shopping, such as Click & Collect (purchase online and pick up in-store), Reserve & Collect (reserve online for a limited time and pay in-store), or connected concierge services such as Groombox.

These digital channels make it possible to disintermediate sales of wines and spirits, connecting consumers and producers through a shared digital platform with no intermediary.

At the interface between physical and virtual realities, the “phygital” concept aims to restore consistency in the consumer journey between website and store. The online showcase is aimed at informing consumers and prompting them go to stores and buy, while bricks-and-mortar store visits are designed to make people want to continue consuming through digital applications. This principle is especially compelling in the wines and spirits sector, as consumers are buying online in increasing numbers while still feeling the need to seek advice from a salesperson in a bricks-and-mortar setting.

To reach people at any time through innovative techniques, some companies have also opted to become part of their customers' daily commute – the so-called convenience principle. In South Korea, the Homeplus supermarket chain, owned by Tesco, has placed pictures of supermarket shelves in the subway, and customers can shop with their smartphone by taking photos of the QR codes for each product. Once purchased, the goods are delivered within the day. Initially run as an experiment, the operation has become permanent, making Homeplus the leader in online retailing.



Establishing and maintaining the customer relationship

Digital technology is also revolutionizing the relationship between brands and their users. The customer experience is being revisited with a seamless and multichannel offer. At every stage, the brand experience must allow customers to move seamlessly from one channel to another, online to offline, when searching for information on a bottle or vintage, purchasing and tracking the purchase, drinking, and, last but not least, posting tasting notes on social networks. New tools are also emerging to promote greater commitment and closer ties to the consumer:

• B2C mobile applications: These apps canhelp consumers choose spirits on the basisof price or quality, while informing themabout new consumption opportunities: foodand wine pairing advice or cocktail recipessuch as Bacardi’s Mix Master. Mobileapplications can also have an informativepurpose by conveying messages that allowbrands to encourage responsible drinking.

• Mobile data: A full 90% of the data existingworldwide was created in the last two years,but only 5% has been analyzed, so thepotential of big data applications is largelyuntapped. These tools make it easier totarget consumers, help better understandtheir needs, and match their expectationsmore closely. Data such as geolocation,online registrations, and search andnavigation histories associated with cookiesfuel these solutions and help make thecustomers' experience or the product theyare buying more unique. Could custom-designed labels pave the way forpersonalized blending?

• Social networks: Social networks cancreate or cement communities around abrand, such as through events like theSmirnoff Exchange Project dancecompetition, with a place on Madonna’steam for the winner. This event enabledSmirnoff to get a billion web impressions,and 5,000 Facebook “likes.” With thedevelopment of at-home consumption ofspirits, social networks are also anopportunity for brands to stay in touch withconsumers wherever they are, even aftertheir purchase.



New business models enabled by NICT developments

New information and communication technologies (NICTs) are a source of new business models enabled by the exponential decline in IT infrastructure costs and huge increases in data storage and processing capacity, as measured by Moore’s, Kryder’s and Nielsen’s laws. Pure online businesses in the collaborative economy and new organizational forms have already emerged and will continue to do so in all parts of the economy.

Incumbent pure players such as winedecider.com, ventealapropriete.com, and wine.com are examples of companies that exist online only, without bricks-and-mortar distribution sites. Generally, these pure players are sellers that do not have a vineyard or a cellar, but there is a distinct possibility that an innovative business model could emerge to compete directly with producers. Along the lines of the Uber model of directly linking drivers and customers, small producers increasingly have the ability to sell their products straight to consumers.

Today, innovative companies generally have big-data driven business models. Young companies like Vinify offer wines adapted to the tastes of customers, on the basis of a questionnaire and a recommendation algorithm. These business models stand out by virtue of their ability to sell many different products to a small number of buyers (through big-data facilitated customization), unlike vineyards or spirits companies, which generally seek to sell a few top-selling brands to large numbers of consumers.

Lastly, DIY and home consumption are becoming popular. Bypassing traditional purchasing and consumption networks, the homemade market is growing, with brand-new industries such as 3D printing and drones. In the field of wines and spirits, it is worth noting that approximately 50% of 18 25 year-olds now celebrate special occasions at home rather than in bars. This offers an opportunity for the industry to develop a DIY segment along the lines of Pernod-Ricard’s Gutenberg Project, an “online liquid library” – the equivalent of Nespresso for cocktails. In a related area, home-made craft beers have grown by more than 10% per annum in recent years.

Robots are also getting into the picture: “Monsieur” is a robotic bartender, successfully funded on the Kickstarter crowdsourcing platform, that promises the “right cocktail at the right time.” It is not unreasonable to imagine being able to rent a robot to organize tastings and receptions, potentially creating a future rival for bars and concierge services.

In conclusion

The commercial, technological and organizational initiatives mentioned in this article, still seen as science fiction only a few years ago, are gradually becoming mainstream. Aware of the opportunities offered by new digital technologies and consumption patterns, most of the major groups in the sector have already invested in innovation. The majority of the projects underway today are still in the experimental stage, but they represent tomorrow’s key growth drivers.

See PwC’s Total Retail 2015 survey on e-commerce, conducted in 19 countries with 19,000 online buyers on http://www.pwc.com/

Total Retail 2015: Retailers and the Age of Disruption

PwC’s Annual Global Total Retail Consumer Survey

February 2015

www.pwc.com/totalretail#TotalRetail


PwC analyzes the opportunities of the digital economy, and alternative funding methods for the wines and spirits industry (Bordeaux – June 14-18, 2015)

Vinexpo Bordeaux

The wine sector experts of the PwC audit and consulting firm and PwC Société d’Avocats will participate from June 14 to 18 in this year’s Vinexpo Bordeaux, the world’s leading wine and spirits trade fair. They will host a conference on the opportunities and challenges of the digital economy for the sector, and will take part in a conference organized by the SAFER on alternative financing.

For company owners, including the managers of SMEs and mid-tier firms in the wines and spirits sector, it is clear that technology is the factor that will have the greatest impact on their business over the coming five years.

The 18th annual worldwide “CEO Survey” conducted by PwC reveals that 81% of managers see the digital economy and new technologies as a major source of strategic disruption over the coming years. But at the same time, PwC’s latest Digital IQ Survey reveals that only 20% of them rate the level of their business as “excellent” in this area. This finding is especially true in the wines and spirits sector, where the majority of companies are SMEs that are not always sufficiently resourced.

Opportunities offered by digital technology in the wines and spirits sector in France

In 2014, e-commerce already accounted for 10% of total wine sales, with projected annual growth of over 20% in the coming years. But the digital economy is more than simply online sales. Today, the entire value chain abounds with opportunities derived from digital technology, starting with operations (anti-counterfeiting, the electronic nose, etc.) and distribution (e-commerce) and going on to customer engagement and relationship management (mobile applications, social networks), and new business models (the “homemade” market for instance).

Loïc Mesnage, PwC Partner in charge of technology consulting, will present the opportunities offered by the digital economy for the wines and spirits sector in France, focusing on the following key issues:

• Choosing the right IT function in adigital world

• The contributions of analytics in termsof production and marketing for thewines and spirits sector

• How the cloud is breaking down entrybarriers by providing mid-tier firmsand SMEs with cutting-edge tools ondemand

• E-business formats for mid-tier firms inthe wines and spirits sector

• Cybersecurity for groups and mid-tierfirms.

Practical information: Wednesday, June 17 from 10:00 a.m. to noon at the Bordeaux Convention Center

Alternative methods of funding are developing

The issue of bequeathing wineries is all the more topical because the winemaker population is aging. According to statistics from the Regional Directorate of Agriculture, Food and Forestry (DRAAF),

almost 71,000 hectares of vineyards in the Bordeaux region will change hands in the coming 10 years. The changes concern the 3,000 winemakers aged over 50 years in the Bordeaux region, who are having to start facing the question of bequeathing their property.

The tools used to optimize family successions, such as agricultural property groups, long-term leases, gifts inter vivos and division of property are well-known, but the structures and capital of wine companies are changing:

• Investment-oriented agricultural property groups, hitherto implementedwith varying degrees of success byfinancial institutions, are growing.

• Financial investors are buying intowineries.

Practical information: Tuesday, June 16 from 10:00 a.m. to 12:00 noon at the Bordeaux Convention Center

PwC, the wine sector specialist for 30 years

Backed by a team of nearly 80 professionals in the wine industry throughout France, PwC and PwC Société d’Avocats have provided support to their clients for 30 years. Areas of expertise include transactions, audit and accounting, taxation in the wine industry, structuring, rural law, trademark law, as well as labor law and social security legislation. They are therefore very familiar with foreign investors.

PwC regularly publishes reviews and documents aimed at industry professionals, such as our pocket guide “Property Transactions in the Wines & Spirits Sector”, the “Wines and Spirits” newsletter, the sixth issue of which has just been released and is available on www.pwc.fr/vins-et-spiritueux, and a brochure in English/Mandarin and English/Russian for buyers of winemaking estates.



Palais des Congrès de Bordeaux

Les opportunités du digital pour la filière Vins et Spiritueux en France

Mercredi 17 juin 2015 10h00 à 12h00 – Room 2

Contacts PwC Société d’Avocats Paule Cathala

© 2015 PricewaterhouseCoopers France. Tous droits réservés.

Infos pratiques

About PwC France and Francophone Africa

PwC performs value-creating audit, accounting and consulting assignments for its clients in France and French-speaking countries in Africa, focusing on sector-based approaches.More than 195,000 people across the PwC network in 157 countries share ideas, expertise and innovative perspectives to improve service quality for their clients and partners. PwC member entities in France and French-speaking African countries combine 5,000 people covering 23 countries.“PwC” refers to the PwC network and/or to one or more of its member units, each of which is a distinct legal entity. More information on www.pwc.com/structure.For the latest PwC news – Follow PwC on LinkedIn and Twitter



Funding the development of French wine companies

The need for capital is becoming ever greater in the world of wine. Investment is necessary to modernize vineyards and ensure the production of quality wines. Other purposes include improving production equipment and buildings, diversifying into wine tourism and upgrading facilities to meet environmental standards. However, investment to develop sales and marketing is still the most critical issue.

French wine companies, whether in the form of private wineries, cooperatives or wine merchants, are eligible for funding to help them become or remain competitive.

Various forms of subsidies and grants are available.

PwC decided to give the floor to two experts, Sandra Tessarotto and Olivier Antoine-Geny of AOC Conseil Aquitaine, to address three issues you are almost certainly wondering about:

What is the best choice among the array of possible funding mechanisms?

Which one best meets my needs?

What funding am I eligible for? What are the criteria?

Expert opinion

FUNDING THE DEVELOPMENT OF FRENCH WINE COMPANIES


Funding the renovation or construction of a production building (winemaking/aging/storage/bottling) or a cellar door sales room. Funding cellar, storage or bottling equipment

If you want to renovate or build production or sales buildings, or buy cellar equipment, FranceAgriMer can help you fund your project.

Who is eligible?

Subsidies are available to all companies (except the GFA and SCI legal forms) operating an economic activity in the wine sector and performing a wine processing, bottling or storage activity (for authorized warehouses), including services companies, subject to certain criteria.

What can be funded?

• Construction or renovation of a wineproduction building, cellar door salesrooms, a tasting room or laboratory,

• Purchase of new equipment for grapereception, winemaking, aging,bottling and storage of wines,controlling temperature or humidity,

• Purchase of furniture for a sales ortasting room, wine cellar, glasswashing machine, etc.,

• Design plans for construction orrenovation, or technical engineering,

• Buildings or warehouses for wineryequipment are not eligible forsubsidies. Replacing existing materialwith identical equipment is noteligible.



How does it work?

Subsidies are based on the “category” of your business: small, medium or large companies. The category refers to the company applying for the subsidy and all related businesses in which it has a stake of more than 25%. They can represent 35%, 17.5% or 8.75% of your investment.

Important:

• The rate is increased by 5% for young farmers and business mergers,

• The rate is increased by 5% for certain investments like buying reverse osmosis units, bright annealed finish 2R tanks, screw cap or mixed bottling machines, etc. (information is available from AOC Conseils Loire Aquitaine),

• The rate is increased for roof frames or insulation as part of renovation work.

Subsidies require a minimum spend of €10,000. However, there is no ceiling for the purchase of new equipment for grape reception, winemaking, aging, bottling or storage.

Subsidies differ depending on whether you are renovating or building. In all cases, eligible building expenses are capped at €400/sq.m. for production buildings and €800/sq.m. for cellar door sales room, regardless of the project’s cost per square meter.

To benefit from this funding, the company has to comply with standards on wine effluents and be able to finance its project. Companies in difficulty are not eligible.

Tips from AOC Conseils Loire Aquitaine

This funding scheme is very popular, so you need to prepare your project and be ready as soon as funding requests open.

Preparing a project does not mean that you can anticipate by placing orders with suppliers or start work before filing the request.

You must respect a set of strict rules:

• First rule: do not sign anything, do not order anything, do not start any work until you have obtained a written agreement from FranceAgriMer.

• Second rule: provide very precise and detailed estimates for all work, calculated for each building trade and each building if necessary. For this you can get help from your architect, a project management company or directly from your suppliers.

• Third rule: make a list of all investments eligible for funding for a period of at least two years, because you will not be able to apply for more assistance until your first project is completely finished, your bills are debited and you have forwarded the supporting documents.

Funding business development in export markets

Various schemes are in place to fund export development. However, to optimize your funding, you need to have objectives by country. It is not possible for example to combine Third Country Promotion funding (Promotion Pays Tiers) with Coface assistance.

Third Country Promotion

Third Country Promotion assistance is the most generous subsidy scheme and the most popular. It is open solely to promotional activity, as opposed to sales development, and only in countries outside the European Union.

Who is eligible?

All wine producers, cooperatives and merchants are eligible.

What can be funded?This subsidy provides funding for various promotional activities, covering up to 50% of expenditure over a period of two or three years, including:

• 50% of the total salary (gross plus social charges) for promotional activity in the target countries,

• travel to the production site,

• valuing and sending samples,

• service providers performing promotional activities on behalf of the business,



• wine shows in third countries only,accommodation packages, wine dinners,

• press relations (press lunches, pressreleases, brochures, advertising agencies,etc.),

• advertising and media announcements(advertisements, displays, productplacements, etc.),

• external blog and social networkmanagement services,

• tastings and training for importers and theirsales forces,

• leaflets, brochures, websites andtranslations,

• product referencing.

How does it work?

A number of conditions and criteria must be satisfied:

• The company must be able to lay out itspromotional strategy as a whole and bytarget country.

• Important: The funding is intended topromote PDO and PGI wines, and non-GIvarietal wines (listed by FranceAgriMer). Itis therefore essential to take stock of thecategory of wines sold in the various targetcountries, as this determines the allocationof the grant. Non-GI wines with noindication of the grape variety and winessold under the importer’s name do notqualify.

• For China, proof of INPI brand protectioneither internationally or in China must beprovided when submitting the application.

• The company may not already benefit fromCoface sales development assistance for thetarget countries.

• Wine shows in Europe, such as VinexpoBordeaux and ProWein, are not eligible.

• As the objective is wine promotion, asopposed to sales development, realization ofthe expected revenue is not a condition.

A file must be prepared and submitted only to FranceAgriMer Montreuil, by October 15 at the latest for actions starting on January 1 in the following year. Applications are selected on the basis of quality: consistent action, strategy, and consistency of products/markets.

Once the application has been accepted, an agreement is signed and a 25% advance on expenditure is paid. A detailed and costed account must be provided every year. Supporting documents must be provided, depending on the proposed activities.


• Make sure you have a good grasp of thetarget country markets, and put yourstrategy into perspective before you draft it:FranceAgriMer officials do not know you,and will judge your project by the way it iswritten.

• The fact that your application is accepteddoes not mean you will receive the funding:the debriefing report must not be takenlightly. We recommend that you selectdifferent supporting documents and write amini-debriefing report on your return fromeach trip. If your supporting documents areinsufficient, your activities will not befunded.

• A 10% penalty applies if you spend less than50% of your provisional budget for eligibleactivities. It is therefore necessary to be veryprecise in your estimates, withoutoverstating them.

• You must show only those countries whereyou will definitely undertake promotionalactivities, as it is not possible to cancel acountry once the agreement has beensigned. If so, substantial penalties mayapply.



Coface sales development insurance

Coface sales development insurance, covering the risk of failure or insufficient success, helps lessen the expenses incurred to develop foreign markets, thereby easing the financial burden of the development effort.

In addition to this cover, Coface’s Avance Prospection market survey insurance allows the company to fund expenses covered under a sales development insurance contract through its bank. This cover is not a pure subsidy, but a cash advance. It is available for all EU countries and export markets outside the EU.

Who is eligible?

All businesses with revenue of less than €50 million and whose export revenue is equal to or less than €200,000 or less than 10% of revenue qualify for “first steps” market survey insurance (Assurance Protection Premiers Pas, A3P).

What can be funded?Non-recurring sales development expenses, without prior approval, such as:

• all forms of advertising targeted at exportmarkets,

• equipment demonstrations in foreignmarkets not resulting in a sale or rental:fixed costs relating to these activities(logistics, external personnel if necessary),return travel expenses and insuranceduring the period,

• samples given to international prospectiveclients (cost, plus transportation, insuranceand external staff costs in some cases),

• upgrading products already on the marketto the standards and requirements ofprospective markets (surveys, approvals,prototypes),

• attendance at a trade event endorsed byCoface,

• fixed compensation of a sales agent orInternational Corporate Volunteer in anexport market,

• travel and accommodation expensesincurred in France for the reception and/ortraining of international sales agents,prospects and customers, or in connectionwith business events or meetings in Francewith foreign buyers,

• travel by employees and/or the company’slegal representative to and in the countriesprospected,

• international market surveys (trademissions, Ubifrance, local provider, etc.),lists of prospects and/or businessinformation,

• travel by employees and/or the company’slegal representative: €200 per day perperson,

• compensation of employees during theirstay abroad: €200 per day per person,

• expenses and fees up to a maximum of€10,000 paid to third parties for advisory ormanagement services (market surveyscommissioned from a third party, legaladvice, translation and interpretation),

• creating or adapting a foreign languagewebsite: up to €3,000.



How does it work?

In general: during the guarantee period and at the end of each year, Coface settles the account and indemnifies the policyholder on the basis of expenditure within the limits of the guarantee.

A detailed report is required, along the same lines as that required under the Third Country Promotion assistance program (see above).

During the amortization period, the policyholder pays a percentage of the revenue generated in the area under the contract within the maximum limit of the funding received.


Sales development insurance can complement Third Country Promotion assistance, particularly in countries where sales are very low and intensive market development is required, with no guarantee of a payoff in terms of sales. It cannot however be combined with Third Country Promotion assistance on a single target country.


Specific terms of “first steps” insurance

• Application is simple and the response is fast, within 48 hours

• Guaranteed expenditure: 10% of total revenue, capped at €30,000 for one year

• Repayment period: three years

• No specified target countries

• Proportion guaranteed: 65%

• Payment of compensation: the company determines when payment is made by sending Coface an expense statement within 12 months of the contract taking effect. The compensation is paid within 15 days

• Repayment of the compensation: repayment, within the limit of the indemnity received, of 10% of export revenue during the three fiscal years reported during the term of the contract

• Maximum of two first steps prospecting insurance contracts covering different years

• Premium:

- 4% of the guaranteed expenditure, deducted from the compensation

- minimum premium when the contract is signed: €200

Specific terms of standard sales development insurance

• Guarantee period of three years

• Repayment over four years

• Target countries presented

• Up to 65% covered depending on the company profile

• Amortization rates: 7%, 14% or 30% depending on the nature of export sales

• Payment of compensation: for a guarantee period of one to four years, Coface pays provisional compensation at the end of each financial year if the costs taken into account are not offset by revenue (thus reducing the financial burden)

• Repayment of compensation: over a repayment period of between two and six years, the company will repay Coface up to the amount of the compensation paid based on its revenues in the area under guarantee

• Premium:

- 2% of prospecting expenditure covered

- payable by the exporter at the beginning of each year of cover



Tax credit for export sales expenses

The tax credit encourages tangible and intangible investments for export, while requiring the company to recruit sales staff.

Who is eligible?

Merchants, cooperatives, wineries, not-for-profit organizations subject to corporation tax and economic interest groupings are eligible.

What expenses are eligible?

Sales development expenditure is eligible if incurred in the 24 months following the recruitment of a sales agent or international volunteer:

• costs, as well as travel and accommodationexpenses for business development inexport markets,

• expenditure incurred in surveyingcustomers and markets,

• expenses relating to attendance at tradefairs and exhibitions,

• expenditure to promote the company’sproducts and services for export,

• monthly allowances and expenses related toan International Corporate Volunteer,

• advisory expenses for internationalexpansion.

How does it work?

This tax credit is applied from the year ended December 31, 2008 through December 31, 2017.

It can be obtained only once. It is deducted from the tax payable by the taxpayer for the year in which the expenses were incurred.

It comes on top of government subsidies, for costs above the funding ceiling: 50% of eligible expenditure, net of expenses guaranteed by sales development insurance or covered by government subsidies or export tax credit = (eligible expenses – government subsidies – sales development insurance) x 50%.

However, it is capped at:

• €40,000 for individual businesses orcompanies,

• €80,000 for not-for-profit organizations oreconomic interest groupings.

Specific aid in the Aquitaine region to finance the recruitment of an export sales manager and an International Corporate Volunteer for merchants

Some regional authorities are prepared to provide additional funding to that offered by FranceAgriMer.

This is the case for the Aquitaine region, to promote the economic development of wineries.

Who is eligible?

Aquitaine wine merchants marketing bordeaux appellations and which have been established for two years as of the application date can obtain funding.



What expenses are eligible?

The regional authority subsidizes promotion or sales development activity in countries defined as targets by the CIVB. Such activities include:

• training in foreign languages and international trade techniques,

• attendance at information days and business meetings on the targeted country or countries,

• advice for upgrading products to the standards and requirements of foreign markets,

• filing and extension of patents (licenses, brands, models) internationally,

• drafting or translation of marketing materials and communication tools (websites, marketing materials, catalogs, technical manuals etc.) in foreign languages,

• publication of articles in the specialized foreign press,

• market research,

• strategic advice and market expertise,

• search and selection of prospects or business partners,

• tests on the offer,

• organization of qualified appointments,

• surveys of foreign prospects or partners,

• international flights (on the basis of one person – employee or manager – per company) and attendance at international trade fairs or major events (stand rental fee) outside the collective regional action program,

• shipping of samples to export markets,

• legal and tax advice, assistance on international tenders, assistance in negotiations,

• interpreting and translation,

• coaching and support for commercial monitoring of initial actions,

• expenses incurred while establishing medium- to long-term trade monitoring,

• coaching and fine-tuning for business strategy,

• provision of an assistant-interpreter or sales agent on a timeshare basis (funding for a maximum of 12 months),

• recruitment and training of sales staff, expenses incurred prior to the opening of a representative office (intangible investment),

• document translation,

• advice from a legal expert and marketing/accounting/tax support, legal registration.

How does it work?

The funding amounts to: 80% of expenditure for young farmers, 50% for SMEs and 25% for mid-tier businesses, with a limit of €100,000 in funding over two years.

For the recruitment of an export sales executive on a permanent contract, the funding provides:

• Support for the first 12 months of gross wages, including all payroll taxes, if the position is newly created (managerial status is required),

• 50% of expenses over 12 months, capped at €50,000 in other cases.

For the recruitment of an International Corporate Volunteer:

• The compensation of the volunteer for 12 to 24 months,

• Existing employees of the company or candidates belonging to the immediate family of the manager or the shareholders are not eligible,

• The funding is limited to the hiring of one manager and one international volunteer per project,

• The funding represents 50% of wages and social charges over a maximum of 24 months,

• The funding is not available for midsize businesses.


This program can be an additional source of funding for use in EU countries, especially those not eligible for Third Country Promotion assistance. It is also important for pure merchant companies hiring a new managerial employee or international volunteer.

If you have a project, start by writing a letter describing your proposal so that the regional authority can register it. You then have time to complete the application.



Financing the restructuring of a vineyard

In France, grape planting is subject to compliance not only with the specifications of the appellations, which control grape varieties, planting density etc., but also those of the customs authority, which govern planting entitlements.

To restructure vineyards, FranceAgriMer, a public administrative establishment under government supervision, subsidizes restructuring as part of either an individual application or an application included in a collective regional plan.

Who is eligible?

All producers are eligible.

How does it work?

To receive planting subsidies, you have to use entitlements resulting from cleared plots verified by FranceAgriMer, which checks the surface area and for any missing plots: minimum of 10 ares and maximum of 6 hectares per year.

The grant is capped at €8,800/ha on an individual basis and €12,300/ha on a collective basis (2014 base) for grubbing up, trellising and irrigation.

The grubbing-up file must be dated prior to grubbing up operations, and the planting file must be submitted by July 31 following the planting.



What funding is available for upgrading to environmental standards? ICPE declaration or authorization

Installation Classified for the Protection of the Environment (installation classée pour la protection de l’environnement – ICPE) is a classification, formalized by the Environment Department of the Prefecture. It provides a framework for standards on wine effluent (i.e., water in contact with the grape or wine) and applies notably to producers and merchants.

The rule is simple: it is mandatory to treat effluent, regardless of the number of hectoliters produced. A standard comes into effect from 500 hl. A statement is required from 500 to 20,000 hl. Authorization is mandatory for quantities above 20,000 hl.

ICPE classification is one of the key criteria in the funding eligibility of buildings and cellar equipment.

Two sources of funding are available to comply with standards governing the treatment of wine effluent: the Plant Plan for the Environment (Plan Végétal pour l’Environnement – PVE) and the Water Board (Agence de l’Eau), which can fund 20-50% of your investment. Note that funding eligibility rules differ from one region to another.

Funding to upgrade the treatment of plant protection product waste is available to all producers under the PVE. It covers investments in washing areas for sprayers, the effluent treatment system, etc. Full-time farmers aged under 60 and contributing to the Amexa farmers’ health insurance scheme qualify for this funding, which can cover 20% to 40% of the expenses incurred.



Financing business diversificationThe example of wine tourism in Aquitaine

For producers such as wineries, wine firms and chateaux, wine tourism offers real added value, as well as the opportunity to showcase skills, promote their activity and host potential buyers. In some cases, tourism can put businesses on a more stable footing by securing an income throughout the year, regardless of weather conditions.

With ten thousand cellars each year attracting nearly eight million visitors across all wine-growing regions, wine tourism is already a major activity in France. It is a fast-growing sector that still has significant growth potential. A third of tourists cite wine and food as motivating factors in choosing a holiday destination. In Aquitaine, the regional authority has fully grasped this dimension.

Funding has been created to assist in developing bed-and-breakfasts (chambres d’hôte) and guesthouses (gîtes) on winegrowers’ properties.

Who is eligible?

B&Bs and guesthouses in an existing traditional building with a three-star comfort level are eligible.

How does it work?

Qualifying investments are as follows:

• indoor and outdoor masonry work,

• amenity investment: heating, insulation,plumbing, decoration, furniture, etc.,

• landscaping around the accommodation,

• energy saving work,

• architects’ fees, etc.

The funding can cover 15% of costs, capped at €100,000 for guesthouses and €3,000 per B&B room, capped at three rooms.

Sandra Tessarotto and Olivier Antoine GenyAOC Conseils Loire Aquitaine


Social security contributions of managers of farming companies: status and current issues

The choice made by many farmers, whether for organizational, legal or tax reasons, to adopt a corporate form (SCEA, SARL, SAS, SA, EARL, etc.) invariably leads them to raise questions about their corporate status and their possible affiliation to the MSA, France’s social security body for farmers. We will therefore examine in this article the main principles used to determine the social security regime applicable to managers of farming companies. Depending on their choices, managers may be affiliated to a fund for self-employed people or a fund for employees. In some cases, they may not be affiliated to the social security regime at all. We will also issue a warning against certain practices grouped together under the name of “social contribution optimization,” which may ultimately prove counterproductive.

Principle

First, managers of farming companies may be affiliated to the MSA only if the company is affiliated to it.

When is such affiliation compulsory? Without going into too much detail, affiliation is compulsory when two conditions are met:

• when the company exercises an agriculturalactivity,(1)

• when the agricultural activity is performedon a farm or business of a certain size.

N.B.: The criterion used to measure the size of the business, and hence to determine whether the manager qualifies for affiliation, was recently amended by legislation on the future of agriculture, food and forestry. Now, the affiliation of managers of agricultural businesses is determined on the basis of the minimum assessable activity, which is reached when the following conditions are met: improvement of a minimum area, minimum working time required to perform the activity (in the case where the activity can be assessed on the minimum area requirement) and minimum professional income.

(1) Three types of activities may be regarded as agricultural: inherently agricultural activities, activities related to agricultural activities and agricultural activities determined by the law.

SOCIAL SECURITY CONTRIBUTIONS OF MANAGERS OF FARMING COMPANIES: STATUS AND CURRENT ISSUES


Once the company’s affiliation has been established, the question of its manager’s affiliation must be settled.

This affiliation will depend above all on the manager’s direct and effective participation in the work of the company. As such, case law considers that the manager (corporate officer) of a company participates by virtue of his or her function.

Once affiliation has been established, the status has to be determined: employee or self-employed? Employee status is established when the criteria of an employment contract are in place (i.e., a relationship of subordination within the company and payment of a wage). Otherwise, affiliation will be under the self-employed regime, unless no affiliation is possible (see below). It should further be noted that if the manager is a partner, affiliation will most likely be under the self-employed regime. Partners participating in the company’s agricultural activity are presumed to do so on a self-employed basis.

ExamplesWithout aiming to be exhaustive, a quick survey will allow us to illustrate these principles by reviewing different types of companies:

Civil agricultural company (société civile d’exploitation agricole - SCEA)Several scenarios are possible:

First scenario: managing partner (“gérant associé”)

Unless it can be proved that the conditions for an employment contract are met (see above), the manager will be affiliated to the self-employed agricultural workers’ regime.

Second scenario: non-managing partner (“gérant non-associé”)

Insofar as the manager is not a “member” of the company, he or she will not be affiliated to the self-employed agricultural workers’ regime. However, affiliation may be possible as an employee if it can be proved that the conditions for an employment contract are met (see above). Otherwise, the manager will not be affiliated to any regime.

Limited liability agricultural company (exploitation agricole à responsabilité limitée – EARL)

Managers of EARLs are partners by definition. As such, they cannot be in a relationship of subordination within the company, and the conditions defining an employment contract cannot be met. They will however be subject to the self-employed agricultural workers’ regime if the conditions allowing the company’s affiliation are met.

Limited liability company (société à responsabilité limitée - SARL)The affiliation of the manager depends largely on the proportion of the company’s capital that he or she holds, as well as the existence or otherwise of wages. Managers are affiliated to the self-employed agricultural workers’ regime in the following cases:

• The manager is the majorityshareholder (i.e., owns half of theshares plus one share)

N.B.: The determination of the majority or minority nature of the interest takes into account, in addition to the shares held directly by the manager, those owned fully or in usufruct by his or her spouse or civil partner and/or dependent minor children. Similarly, when a single SARL has several managers, the personal circumstances of each of them must be assessed not on the number of shares owned directly but on the basis of all shares held by the members of the management board.

• The manager is a minority shareholderand does not receive wages

N.B.: The status of minority shareholder manager treated as an employee is discussed below.

Managers who are not partners cannot be affiliated to the self-employed regime. They may be affiliated to the employee regime if the criteria of an employment contract are met.



(2) CCMSA letter to the FNSEA (farmers’ union) dated November 8, 1996.

The special case of company managers treated by law as agricultural employees

Some company managers are automatically affiliated to the agricultural employees’ regime without the need to establish a relationship of subordination within the company. This is the case for:

• paid managers holding a minority or equalshare in an SARL,

• paid chairmen and officers (CEOs, etc.) insimplified public limited companies,

• paid officers of public limited companies(CEOs, chairmen of boards of directors,general managers, deputy generalmanagers).

N.B.: (i) In all cases, the manager has to receive a wage in order to be treated an employee.

(ii) This status applies only for affiliation to the MSA health insurance regime. It does not entitle the manager to unemployment insurance.

Lastly, a few points to watch

Two points are noteworthy:

The treatment of intermediate companies in determining the percentage of share capital held by the manager

We have discussed the importance that share capital can have on the affiliation of the company manager. In this respect, case law considers that for determining the number of shares held by the manager in a company, shares held by one or more intermediate companies over which the manager has control must be taken into account. This is the case:

• in SARLs: we take into account the shares ofthe intermediate companies over which themanager has control (i.e., is the majorityowner) in determining the proportion ofcapital held by the manager in the company;

• in SCEAs: the notion of intermediatecompany is also used to determine theproportion of capital held by the manager inthe company.As such, the CCMSA, the central fund of theMSA, considers that managers who are notpartners or employees of SCEAs maynevertheless be affiliated to the self-employed regime if the manager personallycontrols and manages a second companythat holds shares in the SCEA.(2)



1e trimestre 2015

L’actualitésociale n° 83Paie et gestion sociale

Sommaire

Ce qui change au 1er janvier 2015 1Surcontribution AGEFIPH : finie la tolérance 14L’entrée en vigueur du Compte Pénibilité 16Passage du DIF au CPF 18Les brèves 20

Attend conferences on new developments and take part in the training workshops of PwC Société d’Avocats published on http://www.pwcavocats.com/evenements-a-venir.html.

Check out this quarterly publication from PwC: Social Security News, on http://expert-comptable.pwc.fr/fr/, under “Your situation” (soon in english)

Affiliation of managers of holding companies

Case law has recently established the concept of intermediate holding company. The courts examined the case of a holding company designated as the manager of an SCEA in which it held a 99% interest, while the holding company itself is 88%-owned by its registered chairman, who had made major operational decisions within the SCEA. It was ruled that the manager should be regarded as participating as a member in the work of the company, and as such should be affiliated to the self-employed regime. (3) The scope of this ruling is uncertain, however.

It should be noted that the administration has taken this ruling to mean that, in the case of an intermediate holding company, the dividends received by the manager of the holding company must be included in the calculation of self-employed agricultural workers’ social security contributions under the new scheme imposing partial contributions on dividends paid to farm managers.(4)

Extreme caution is therefore required, and attempts to optimize social security contributions in this way should be avoided.

Julien TayegPwC Société d’Avocats

(3) Cass. soc. 12-10-2013 n° 12-24.014.(4) Technical instruction, SG/SASFL/SDTPS/2014-547, 07/07/2014, 1.2, p.2.


Developments regarding SAFERs and structure control

Since the Future of Agriculture, Food and Forestry Act (No. 2014-1170) was passed on October 13, 2014, many of our clients have asked questions about their “new” obligations under regulations relating to Land Development and Rural Establishment Companies (Sociétés d’aménagement foncier et d’établissement rural – SAFER) and also about structure control with regard to an acquisition or a restructuring transaction.

These regulations, whose stated objectives as regards the new legislation are to preserve agricultural land and safeguard human-scale farms, are perceived by most winemakers as further constraints on the development of their business.

This feeling is compounded, as regards structure control, by laws whose interpretation is debatable and which are almost impossible for a novice to understand.

The sections of the new legislation relating to SAFERs and structure control have extended SAFERs’ right of first refusal and introduced a disclosure requirement for transactions not subject to that right. The scope of structure control has been broadened.

Only some aspects of the Future of Agriculture, Food and Forestry Act will be discussed below, so as to set out in a very broad manner the objectives pursued by the legislator.

SAFERs: extension of the right of first refusal

Until the law was passed, SAFERs could not exercise a right of first refusal on transfers of company shares. That right was confined to buildings.

The only constraint was the need to notify interested parties in the event that company shares were transferred. Failure to do so, however, was not punished.

Unsuccessful attempts had been made to insert a right of first refusal into the law in connection with the transfer of corporate rights.

But this aim has now been achieved, and SAFERs may exercise a right of first refusal in the case of the transfer in exchange for payment of all units or shares in a company whose principal purpose is the management or ownership of agricultural land, provided that the right is exercised to set up a farmer in business.

As such, all sales of agricultural property that previously escaped the SAFERs’ right of first refusal because they did not concern buildings are now subject to this right.

New legislation on the future of agriculture


DEVELOPMENTS REGARDING SAFERS AND STRUCTURE CONTROL

For structure control, the legislator has sought to respond to the consequences of converting many properties and farms into companies.

However, exercising SAFERs’ right of first refusal will no doubt be very problematic when it comes to companies working in farming: how can a SAFER exercise, without taking risks, its right of first refusal on the shares of a company for which it has neither the time nor presumably the capacity to conduct the usual due diligence that purchasers perform in this type of transaction?

Transferring shares in a vineyard is a complex transaction that generally requires prior audits lasting between one and two months. These audits have different purposes, focusing notably on legal, fiscal, payroll, technical, accounting and financial issues. They allow the purchaser, among other things, to confirm the acquisition and the price, to identify operational strengths and weaknesses, and to better negotiate asset and liability guarantees and the financial limits of the seller’s guarantee.

How will it be possible for SAFERs to assess the conditions of notified transactions without conducting the minimum due diligence

required of a purchaser and to hire the skills and pay the costs required for these investigations?

It remains to be seen what information will have to be provided to SAFERs in share transfers that are subject to their right of first refusal. The relevant decree has yet to be issued, and is unlikely to come out before September or October 2015.

The law is unclear on whether exercising the right of first refusal is subject to the publication of this decree. Some contend that it is, others argue that it is not.

As a precaution, most practitioners today notify transfers of shares, but SAFERs have so far waived their right of first refusal.

Time will tell whether the right of first refusal will actually be exercised, bearing in mind as regards buildings that more than 75% of the transactions currently conducted by SAFERs are agreed deals. Note that, in the context of agreed sales, SAFERs can now acquire all or part of the shares of certain companies.

SAFERs will certainly remain very cautious in this area.

Also as regards SAFERs’ right of first refusal, we note that the new legislation has extended the scope of this right in the event of a transfer with ownership rights split between usufructuaries and bare owners of property subject to the right of first refusal. Case law has confirmed that SAFERs may exercise their right of first refusal on freehold sales only: to circumvent this established case law, SAFERs have obtained an extension of their right of first refusal.

However, the law places conditions on the exercise of rights of first refusal in respect of bare ownership:

• SAFERs must either already hold theusufruct or acquire it concomitantlywith the bare ownership, and/or

• the duration of the remaining usufructmust not exceed two years.

SAFERs can now also exercise their right of first refusal on part of the transferred property only: this is a partial right of first refusal, making it possible for instance to avoid preemption of the sale of assets not intended for agriculture. However, the seller’s rights are “protected,” as the seller is under no obligation to sell only a portion of the property offered for sale.



SAFERs: prior notification

The Future of Agriculture, Food and Forestry Act introduces a new right of prior notification of all sales of rural property, land, farms or forestry, whether or not such sales are subject to SAFERs’ right of first refusal.

Failure to provide this notification may be punished.

If the right of notification covers a transaction subject to the right of first refusal and that prior notification has not been duly addressed to SAFER, a SAFER can require the rescission of the sale.

If, by contrast, the transaction does not fall within SAFERs’ right of first refusal, the financial penalty will be at least a Class 5 fine – roughly €1,500 – or, at the most, 2% of the transaction amount.

The notification requirement is clearly subject to the publication of a decree by France’s highest administrative court, the Conseil d’Etat, which was still pending at the time of writing. We do not know what information will have to be provided to SAFERs.

Structure control: a new definition of objectives

It is interesting to consider the terms of the new Article L. 331-1 of the French Farming Code (Code rural), which defines the main purpose of structure control as being to encourage farmers to set up for business, including those that are doing so progressively.

Significantly, the objective stated in the former law, namely to promote the expansion of agricultural holdings, has been removed and replaced by the aim of consolidating or maintaining farms to enable them to reach or maintain a viable economic dimension in reference to the criteria set out in the regional farming master plan.

The drafting of the new law reflects the legislator’s goal of fostering human-scale farms, and combatting excessive consolidation of farms. The notion of progressive establishment is nevertheless interesting, as it reflects a form of economic realism, namely the need to maintain an activity alongside farming during the period of establishment.

We also note that the relevant master plan is no longer set at the level of the local administrative area (département) but rather at the regional level. Publication of the new plan is still pending.



Structure control is reinforced insofar as lowering surface area thresholds should automatically trigger an increase in demand. Similarly, some family farms that under the previous law fell under the regime of prior notification now require prior authorization.

Part of the law was thrown out by the Constitutional Court (Decision of October 9, 2014). This was the portion that used the terms of a 2008 administrative circular on dual ownership within companies. The language of this circular defined expansion as “acquiring, either directly or indirectly, an interest in another farm.” This part of the new Article L. 331-1-1 has accordingly been deleted from the final law. The interpretation of the law in that respect is now resolved.

The Future of Agriculture, Food and Forestry Act has not made the articles relating to structure control any easier to address. The problem of interpreting the law relating to structure control remains unresolved, leading to aberrant situations. For instance, there are cases in which the farmer may opt to request authorization, even when not bound to do so, in order to avoid “running a risk.” It is nevertheless preferable in some cases to make a reasoned submission to the administration in the aim of defending one’s interpretation rather than taking the risk of filing a competing application.

In conclusion

The Future of Agriculture, Food and Forestry Act has not really changed the environment that farms have grown used to over the past decades.

The legislator’s objectives may be laudable in that the aim is to protect our environment and to defend the interests of the weakest.

But on a practical level, and given the complexity of the regulatory environment, are the weakest really better protected than those who have the means to be advised and defended?

Paule CathalaPwC Société d’Avocats

Pocket Guide

Sale and purchase of vineyards

Access all the expertise of PwC and PwC Société d’Avocats teams in its publications on http://www.pwc.fr/ on “Publications.”


News on successions and gifts

News on successions concerns both the legislative and the judicial aspects.

In legislative terms, the main development is the reform of international successions, which comes into force on August 17 this year.

Moreover, case law in respect of estate law and gifts has been fairly extensive in recent times, adding important features, including the practice of gifts inter vivos and benefits in kind offered to children.

In this article, we will look at some of the decisions we believe to have been the most significant in this area.

New rules for international successions

On August 17 this year, new rules established by the European Regulation of July 4, 2012 on international successions will come into effect.

Cross-border estates are now very numerous: the European Commission cites a figure of approximately 450,000 international successions each year in the European Union.

A succession will take on an international dimension if the deceased owned property in a country other than where he or she lived or of which he or she was a national, or if he or she was residing in a country of which they were not a national. These types of cases are now very frequent.

This makes it important to become familiar with the new legal regime that will apply to estates of this type, which will open on August 17, 2015.

Without going into detail or the infinite subtleties of this very complex matter, our aim here is simply to give an overview of the main innovations ushered in by the European Regulation in respect of the methods typically used to settle international successions.

All commentators agree that, in general, the entry into force of the new rules will significantly simplify matters by making it easier to determine the applicable law for settling these estates. Most legal practitioners consider that, until now, the process has been too complicated.


NEWS ON SUCCESSIONS AND GIFTS

The new Regulation represents a radical break with the previous regime, particularly on two points:

• French international law firstlyapplied different rules depending onwhether the estate related to movableproperty (money, securities,certificates, shares, etc.) or buildings:the law governing estates comprisingmovable property was the law of thelast domicile of the deceased, whereasestates comprising buildings had to besettled in accordance with the law ofthe country where the buildings werelocated.For instance, the estate of a Frenchperson dying in France but owningbuildings in Spain would be governedby French law for the movableproperty and buildings located inFrance, and by Spanish law for thebuildings located in Spain. In alllikelihood, this situation did notsimplify matters, as the estate lawapplicable in the countries concernedmay have contained significantdifferences.Moreover, the issue may becompounded by references in nationallaw to the law of another country,bearing in mind that privateinternational law is not necessarily thesame in France as in other countries.This certainly did little to ensure aswift and orderly settlement of theestate.In this respect, the new Regulationprovides a welcome simplification bysubjecting all estates opened on orafter August 17 to a single law: that ofthe country where the deceasedresided at the time of death.

This does away with the split between movable property and buildings. Now a sole criterion – the last place of regular residence of the deceased – will determine both the jurisdiction and the applicable law for international successions (except in cases set forth in the Regulation).Thus, for instance, the estate of a French person residing in France and having assets in several countries will be governed solely by French estate law. This will undoubtedly guarantee better visibility, thereby facilitating estate planning.

• The second major innovation is thepossibility now available to Europeancitizens, since 2012, to better plantheir estate in advance by making itsubject to the law of the country whosenationality they hold.The ability to designate the applicablelaw in the person’s will introduces aconsiderable degree of flexibility.For instance, French people residing inanother country may, if desired, avoidthe application of the estate law of thiscountry by designating French law intheir will, if it better suits their aims interms of bequests to family members.Naturally, this implies a soundknowledge of comparative estate law,if not the advice of a specialist in thefield.Estate law can vary quite significantlyas regards the rules applicable to thedetermination of heirs, protection ofchildren (via the right to a reservedportion) and the surviving spouse, oras regards gifts, distribution of theestate, etc.

• The 2012 European Regulationsimplifies matters further by creatinga European Certificate of Succession,through which any citizen of theEuropean Union can demonstrate theircapacity as heir in any other MemberState without having to complete otherformalities to claim their testamentaryrights.

To complete this overview, we should point out that the new rules apply only to the civil aspects of international successions, and do not affect calculation and payment of inheritance tax.

Taxation of international successions is still governed by national legislation and the tax treaties in force between the various European countries.



No gifts inter vivos without division of property

At first site, this statement seems self-evident. Yet it was a relatively common practice for parents to make their children a gift of undivided shares of one or more family assets, including buildings that are not readily divisible, through deeds classified as gifts inter vivos.

This therefore resulted in the creation of joint ownership between the co-beneficiary children, each being assigned undivided interests in an item of property, as opposed to a private and individual interest.

This practice, which has been criticized by a number of eminent authors, was curbed by the Court of Cassation in two landmark decisions dated March 6, 2013 and November 20, 2013.

In both cases, the Court of Cassation refused the classification of gifts inter vivos to deeds attributing undivided portions to some or all of the beneficiary children, firmly noting that “gifts inter vivos are only permissible when the ascendant performs a material division of property distributed between his descendants.”

As a result, such deeds cannot be used to apportion assets, and will be reclassified as ordinary gifts.

This reclassification is significant insofar as it results in the loss of the decisive advantages offered by gifts inter vivos for civil purposes, which made them a valuable tool for stabilizing and securing family bequests, i.e., by removing the need to incorporate the assets received into the estate of legator parents and the non-revaluation of the assets at the date of the death of the legator for the calculation of the reserve and the available portion.

However, there is a “catch-up clause” insofar as paragraph 2 of Article 1076 of the French Civil Code (Code civil) provides that the gift and the division must be established by separate deeds. Undivided property given to children may therefore be split in a subsequent deed, but only on condition that the parent legator signs both instruments, implying that the division must be performed in their lifetime.

For tax purposes, the division of the property in a deed subsequent to the gift has the disadvantage of being subject to a tax of 2.50%.

Another possibility for the subsequent rectification of a gift inter vivos with undivided portions is to reincorporate it in a new gift inter vivos made by the parents in favor of their children and possibly grandchildren (cross-generational gift inter vivos), as allowed under Article 1078-1 of the Code civil.

It is important to note in this regard that in a recent judgment dated January 15, 2014, the Court of Cassation validated the incorporation into a gift inter vivos of undivided property previously given to several children, and its grant to a co-beneficiary.

But here too, there will be an additional cost in terms of division fees.



Is the provision of free accommodation to a child by its parents an incorporable gift?

Until recently, the court considered that the provision by parents of housing free of charge for their children (other than in the family home) was in all cases an indirect advantage for the beneficiary and must be incorporated into the estate of his or her parents.

The additional amount was in such cases set by case law as the sum of rent saved by the beneficiary child during his or her free occupation of the building, which, over a period of several years, can be very substantial.

The issue is therefore anything but trivial, especially since this is a fairly frequent claim on the part of the siblings of the beneficiary when settling the estate of parents.

On this specific point, the Court of Cassation has made a significant about-turn in the form of four decisions handed down in January 2012, with the apparent intention of halting disputes of this type between heirs by returning to a more orthodox position requiring the provision of free housing to be a genuine donation, assuming “an impoverishment of the giver with the intent to gratify his heir.”

In other words, it will no longer be sufficient for aggrieved co-heirs to establish that their sibling was housed free of charge in accommodation made available by their parents over a specific period in order for the relevant amount of this benefit in kind to be taken into account when dividing the estate. They will also need to show that their parents had a donative intent in consenting to the benefit for one of their children, which will not be easy to do.

In most cases, the parents will not have formalized the advantage in a deed or a will, and evidence of donative intent will have to be sought in circumstances of fact, e.g., provision of housing over a period of many years, children in employment and with sufficient income to provide their own housing, and lack of consideration from the housed child.

As such, when parents allow their child to live at home or house them free of charge in a separate apartment during their studies or in times of need, in compliance with their support and maintenance obligation, they will not be deemed to have made a gift that has to be incorporated into the estate.

In short, if parents wish to avoid ambiguity about the nature of the free provision of housing for their child, and so preclude any disputes between their heirs in the subsequent settlement of their estate, they have an incentive to formalize a written deed, in the form of a will, a usufruct donation, a loan, etc., as appropriate.



What about buildings erected by parents on land they have given in bare ownership to a child?

This is a relatively classic pattern of the gift of the bare ownership of land to one of the children, followed by the construction of a house or building by the legator parents who have retained the usufruct of the donated property for the remainder of their lives.

In such cases, both the co-heirs of the child bare owner and the tax authorities may be tempted to see this transaction as an indirect benefit given free of charge by the usufructuary parents to their child.

The value of the land given to the child will indeed, in theory, be substantially increased by the construction financed by the parents.

Thus, in a recent case, the tax authorities claimed the right to classify as an indirect gift the investment properties built by a father on land given to his daughter in bare ownership and over which he had retained the usufruct, and thus to levy transfer tax on the value of work performed on the land transferred free of charge.

The Court of Appeal of Lyon, upheld by the Court of Cassation in a decision dated September 19, 2012, rejected this claim, stating the principle that since the bare owner daughter did not enjoy immediate ownership of the buildings, she did not come into possession of them until the end of the usufruct of the father, and as such did not enjoy immediate enrichment.

The Court of Cassation therefore ruled that there was no indirect gift by the father to his daughter in this case.

In support of this favorable position, which further increases the benefits of dismemberment of ownership in terms of asset optimization, the court also cited the provisions of Article 599 paragraph 2 of the French Civil Code (Code civil), according to which “the usufructuary may not, upon termination of the usufruct, claim any compensation for the improvements he claims to have made, even though the value of the property may have increased.”

Under the Code, it is clear that improvements made by the usufructuary will ultimately provide a benefit for the bare owner alone.

However, certain circumstances of fact may help demonstrate that the transaction actually conceals an indirect gift, which could then be invoked either by the co-heirs to claim its incorporation into the estate, or by the tax authorities to levy gift tax, provided the donative intent of the usufructuary parent can be proved.

However, this evidence will be harder to provide if the usufructuary has the enjoyment of the property for a long time, as such having benefited personally from the buildings constructed by him or the income from their rental.

Philippe LAVALPwC Société d’Avocats



Mardi 26 mai 2015

La France va-t-elle perdre sa place de «championne» en matière de taxa-tion des revenus du patrimoine et du

capital en 2015 ?La loi de finances pour 2015 du 29 décembre 2014 a supprimé la tranche d’imposition à 5,5 %. Ainsi, les contribuables dont les reve-nus imposables n’excédaient pas, en 2014, 9 696 euros sont exonérés d’impôt.La tranche marginale d’imposition au taux de 45 % se déclenche quant à elle pour les reve-nus excédant 151 956 euros.Dès lors, le taux marginal de l’impôt sur le revenu s’élève à 62 % en y incluant les prélè-vements sociaux au taux de 15,5 % ainsi que la contribution exceptionnelle sur les hauts revenus au taux marginal de 4 % et en tenant compte des 5,1 % de CSG déductible.En comparaison de ses voisins européens et suisses, la France a de loin le taux d’impôt sur les revenus le plus élevé, et cela même si l’on extourne la contribution exceptionnelle sur les hauts revenus, le taux marginal d’im-position s’élevant alors à 58,20 %.Cependant, deux éléments demeurent non négligeables et induisent une réduction des

écarts d’imposition existant entre les diffé-rents Etats étudiés ici et la France. En effet, la progressivité de l’impôt sur le revenu est plus importante en France que dans la plu-part des Etats. Il est dès lors plus rare que les tranches marginales d’imposition soient atteintes, contrairement à la Belgique ou encore à l’Italie (75 000 euros pour la der-nière tranche en Italie).De plus, la France est l’un des rares Etats à imposer à l’impôt sur le revenu par foyer fiscal et non individuellement ses contri-buables.Concernant les dividendes, la France est également en tête des bilans internationaux avec un taux marginal d’imposition s’élevant à 44 %.On notera que la France semble imposer plus lourdement l’épargne employée pour le financement durable et à risque des entre-prises que les produits financiers liquides et sans risques. Ainsi, le taux marginal d’impo-sition des dividendes sera de 44 %, contre 15,5 % de prélèvements sociaux uniquement et prélevés au fil de l’eau pour les PEA de plus de cinq ans.

Le rachat de ses propres titres par une société : une nouvelle donne fiscale p.2La holding animatrice : un sésame fiscal encore capricieux p.5Transfert du siège social : un régime facilité mais pas totalement neutre p.6La qualification juridique de la CSG et de la CRDS clairement établie pour la Cour de justice de l’Union européenne : contribuables, à vos réclamations ! p.8Actualité des successions et dona-tions p.9Vers une simplification des succes-sions internationales ? p.11

Sommaire

GESTION DE GESTION DEPATRIMOINEPATRIMOINE

LA LETTRE

Supplément du numéro 1319 du 26 mai 2015

Edito – Quelle est la situation de la France au regard de ses voisins européens en matière d’imposition des revenus du patrimoine et du capital ?

et Philippine Parini, PwC Société d’Avocats,

Par Georges Morisson-Couderc, avocat associé,

PwC Société d’Avocats,

Check out the Asset Management Newsletter prepared by PwC Société d’Avocats for Option Finance, at http://www.pwcavocats.com/, in the Publications/Newsletters section.

Check out the eAlerts from PwC Société d’Avocats on http://www.pwcavocats.com/, under the eAlerts section


The Citadelles du Vin competition is celebrating its 15th anniversary. This prestige event, established in 2000, is organized according to the rules of the OIV* and has been a member of VINOFED** since 2014. Competing wines are strictly controlled before, during and after the competition.

Nearly 60 professional wine tasters from around the world select the best wines and spirits among more than 1,200 entries from 30 countries. Over 75% of wines are from countries other than France.

In addition to gold and silver medals, six categories of Special Awards are presented. PwC teams will have the privilege of presenting an award this year.

* International Organisation of Vine and Wine** World Federation of Major International Wine and Spirits competitions

More information on www.citadellesduvin.com

Citadelles du Vin 2015awards ceremony

Contacts

www.pwc.fr

PwC Société d’Avocats BordeauxPaule CathalaDirector+ 33 (0)5 57 100 [email protected]

Stéphanie VerschaveManager+ 33 (0)5 57 100 [email protected]

© 2015 PricewaterhouseCoopers France. All rights reserved. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. In no event shall PricewaterhouseCoopers France or any member fi rm of the PwC network be liable for any consequences of a decision made on the basis of any information contained herein.

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