The tax treatment of rent waivers and Covid 19

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THE SITUATION OF THE DONORS

1 – Donors receiving land revenues

at. The current situation

When the lessor renounces collecting rents, the latter remain taxable as soon as this abandonment is assimilated, by the tax authorities, to a donation for the benefit of the lessee, except to demonstrate serious cash flow difficulties encountered by the lessee.

b. The new situation

With regard to lessors falling under the category of property income, the new article 14 B of the general tax code (hereinafter “CGI”) provides that lessors taxed in the category of property income (individuals or SCI) are not taxable on rents and accessories relating to a building rented to a company that they renounce to receive between April 15 and December 31, 2020.

However, they are allowed to deduct the corresponding financial charges: property charges and loan interest.

The tenant company must not be at arm’s length from the lessor within the meaning of article 39, 12 of the CGI. Two companies are deemed to be dealing at arm’s length when:

• one holds directly or through an intermediary the majority of the capital of the other or in fact exercises decision-making power;
• they are both placed under the control of the same third party.
  The tax administration adds that an arm’s length relationship can be characterized when the same group of majority shareholders holds the decision-making power in two companies that are separate from each other, due to the community of interests. implied by this situation which creates a link of dependence between the two companies in question. This present measure does not apply when the tenant company is operated by an ascendant, a descendant or a member of the tax household of the lessor, except if the latter justifies the financial difficulties of the tenant company.

2 – Donors under the BIC

at. The current situation

Pursuant to article 39 1 8 ° of the CGI, the waiver of commercial debt is deductible from the company’s income if it constitutes a normal management act. This condition is not required when the abandonment is granted as part of a safeguard or recovery plan.

In principle, write-offs of a non-commercial nature are not deductible.

In principle, write-offs of a non-commercial nature are not deductible. However, article 39 13 of the CGI provides that, by exception, the abandonment may be deductible from the result of the financial year if it is granted in the interest of the company which consents it, and if this decision granted pursuant to an agreement approved or recorded in accordance with article L 611-8 of the French Commercial Code or to a company subject to bankruptcy proceedings.

b. The new situation

For lessors falling under the BIC, write-offs of rent receivables and accessories relating to buildings rented out to a company and granted between April 15 and December 31, 2020 are deductible from the taxable income of companies without the need to justify an interest in renouncing it. This system is applicable to companies subject to income tax and corporation tax, provided that this company is not at arm’s length from the lessor within the meaning of article 39.12 of the CGI. . In the event that there is an arm’s length relationship, the abandonment will only be deductible if it is of a commercial nature for the benefit of a company in financial difficulty and falls under normal management.

These provisions apply to fiscal years ending on or after April 15, 2020.

3 – Donors reporting to BNCs

The rents and accessories relating to buildings rented out to a company, having been the subject of an abandonment or a waiver granted between April 15 and December 31, 2020 are not taxable. As for property income and BICs, there must be no dependency links between the lessor and the tenant company.

The Lessor may however deduct the charges corresponding to the items of income that have been abandoned or waived.

In the event that the taxpayer has opted for accrual accounting, the write-offs of debts are deductible in their entirety under the same conditions as for taxpayers falling under the BIC.

These provisions apply to fiscal years ending on or after April 15, 2020.

The situation of tenant companies

For tenant companies, the debt waiver will constitute taxable income which will offset the corresponding rent charge deducted from the result. Regarding tenant companies subject to corporate tax, article 209 of the CGI provides that in the event of a deficit suffered during a financial year, this deficit is considered as an expense for the following financial year and therefore deductible within the limit of an amount of one million euros increased by 50% of the amount of the taxable profit of the said financial year exceeding one million euros.

The second finance law for 2020 provides that the debt waiver (rents and accessories) will increase the ceiling of one million euros for charging previous deficits.

This measure is reserved for withdrawals granted between April 15, 2020 and December 31, 2020 and during a financial year ending on or after April 15, 2020. The increase in the charge limit is only applicable for the charge of a deficit recorded during a financial year ending before April 15, 2020 on the profit for a financial year ending on or after April 15, 2020.

For companies that ended their financial year on December 31, 2019, this measure will only be of interest if they have a loss carryforward as of December 31, 2019, and a profit at the end of the financial year on December 31, 2020 Thus, the deficit recorded at December 31, 2020 and carried over to the profit for the year ended December 31, 2021 cannot be increased by debt write-offs, once they were granted in 2020.

Florent OLMI Associate Lawyer TAX TEAM and CONSEILS Mail: [email protected] – Tel: 05 56 00 84 70