Investment and reinvestment in the hotel industry: a real opportunity, under strict conditions

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When a manager sells his business, capital gains taxation can quickly reduce his ability to reinvest. The purpose of the transfer-transfer mechanism is precisely to avoid this economic rupture, by allowing taxation to be deferred so that the proceeds of the sale can be reinjected into real economic activity.

A take-over consists in bringing the shares of the company sold to a holding company controlled by the manager, before this holding company sells them. The capital gain recorded during the contribution is then placed on a tax deferral on the basis of article 150-0 B ter of the CGI. In the event of a rapid sale of the shares by the holding company, no immediate taxation is due, subject to compliance with reinvestment conditions.

Among the options sometimes considered is para-hotel investment, driven by the dynamism of the tourism sector. However, this option is neither automatic nor obvious and requires rigorous structuring.

The principle of economic reinvestment

When the transfer of the shares transferred takes place within a period of three years from the date of the contribution, the holding company is required to make a economic reinvestment.

This reinvestment must focus on at least 60% of the sale proceeds, appreciated net of the costs and expenses directly related to the transaction. The remaining 40% can be freely allocated by the holding company.

The reinvestment must take place in a period of two years beginning with the transfer and relating to assets or securities held for a minimum period of time, in principle of 12 months.

Eligible activities are strictly supervised. The proceeds from the sale must be used to finance a real economic activity, commercial, industrial, artisanal, agricultural or financial. On the other hand, the activities of management of own assets, whether it is furniture or real estate.

In practice, a rental real estate investment is therefore, in principle, not eligible, whether it is a bare rental or a furnished rental. For the transfer, the administration and the judge adopt an economic approach: furnished rentals remain a heritage activity.

The accepted exception: para-hotel activity

However, case law allows for an exception when real estate activity exceeds the simple provision of the property and is analyzed as a real exploitation activity.

In a decision of April 19, 2022, the Council of State recognized that a furnished rental activity with para-hotel services could be an eligible economic activity.

Definition of para-hotel activity

The concept of para-hospitality is defined by reference toArticle 261 D of the CGI, relating to VAT liability.

Para-hotels include short-term accommodation services accompanied by the provision of at least three of the following four services:

— breakfast

— regular cleaning of the premises

— the supply of household linen

— customer reception, even if not personalized

These services must be actually provided and not simply provided for by contract. Their reality must be able to be demonstrated by the concrete organization of the farm, marketing materials or documents issued to customers.

Conditions of exercise and organization of the activity

To be qualified as a para-hotel, the activity must be based on services that are really provided and identifiable. Customers should be clearly informed about the services offered.

The use of external service providers is allowed, provided that they intervene at name and on behalf of the operator, which maintains control of the activity and bears economic risks.

The cleaning of the premises must be proposed in a manner regular. For short stays, cleaning prior to arrival may be sufficient. For longer stays, cleaning during the stay should be offered.

The supply and renewal of linen must meet similar requirements. Welcoming customers implies a reception Effective at the beginning and at the end of the stay.

An insufficiently structured organization exposes the activity to being reclassified as a simple furnished rental, with significant fiscal consequences.

Contribution-transfer and para-hotel services: a transposition under conditions

Although the case law relating to para-hotels has not been rendered specifically pursuant to article 150-0 B ter of the CGI, its reasoning seems transposable.

The administrative judge adopts a coherent interpretation of the concept of economic reinvestment, based on the desire of the legislator to promote the development of productive activities and not the simple management of assets.

In this logic, a reinvestment in a para-hotel activity carried out under professional conditions can be considered as eligible for the continuation of the tax deferral. However, the qualification is based on a thorough factual analysis.

Security through the tax rescript

Given the narrow border between asset activity and economic activity, the use of Tax rescript is an essential security tool.

It makes it possible to obtain from the administration a formal position on the eligibility of the planned reinvestment, in view of the situation precisely described. As long as the real situation remains consistent with the facts set out, the administration Can't question the validated analysis.

The reinvestment of the proceeds of a sale in a para-hotel business can be a relevant way to maintain the tax deferral in the context of a transfer-sale.

However, this strategy requires going beyond a purely real estate approach and setting up a genuine operating activity, structured and in accordance with legal and administrative requirements.

The border between heritage activity and economic activity remains narrow. Rigorous foresight and specialized support are essential to sustainably secure the operation.