Implementation of a 20% discount on the value of the usufruct of the shares

As part of their asset disclosure for wealth tax purposes, taxpayers who hold full usufruct rights to shares in a civil company that owns real estate are requesting a 30% reduction in the market value of their shares due to the low liquidity of this real estate asset. 

This claim is based on the existence of an approval clause in the articles of incorporation governing the transfer of shares. The Court of Cassation criticized the Court of Appeals’ decision, which had dismissed their claim, faulting the judges for relying on the absence of joint ownership and on the principle that no reduction in market value could be claimed in the event of a division of ownership. These grounds were deemed inappropriate for ruling out the possibility of a loss in the market value of the property, linked to the situation of the bare owners who indirectly held the property through shares whose transfer is restricted by a consent clause (Cass. com. Feb. 15, 2023, No. 20 19.451).

Following the reversal by the Court of Cassation, the Montpellier Court of Appeals (CA Montpellier, Nov. 7, 2023, No. 23/01048) ruled that the tax authorities must apply a 20% discount to the market value of the shares. This discount consists of 10% due to the taxpayers’ use of the property as usufructuaries and 10% due to the presence of the approval clause, which affects the liquidity of the shares. It is important to note that this ruling may be extended to the Real Estate Wealth Tax (IFI).