France's changes in 'REIT' regime unveiled

New rules for French real estate investment trusts, known as SIICs rather than REITs, are being debated in the National Assembly. On December 13, the fourth part of the SIIC regime was set out in an amendment in the Senate to the financial correction bill for 2006. The changes aim at facilitating and diversifying access to the capital of SIICs, as well as avoiding the creation of captive SIICs with a single shareholder.

During the debate, senator Philippe Marini submitted a proposal to close tax loopholes used by foreign investors controlling French SIICs. The move primarily targets Spanish real estate companies, such as Metrovacesa, Grupo Inmocaral and Sacyr Vallehermoso. They derive benefit from a tax treaty between France and Spain, permitting them to avoid payment of withholding tax. Marini proposed a 20% tax on dividend payments by SIICs to majority shareholders who are now exempt from withholding tax.

Marini also suggested that, by the start of 2009, no shareholder may own more than 60% of a SIIC. As Marini's political party, the Union for a Popular Movement, controls the Senate and the National Assembly, the proposals are likely to be formally adopted.

Before the debate, many sector specialists had maintained a revision was needed to solve misuse of the vehicle. State firm Caisse de Depots, as well as financial institutions like BNP Paribas and Groupama, and foreign companies, notably the Spanish, have benefited from previous SIIC provisions.

Since introduction of the regime in France in 2003, the SIIC system has grown to encompass 42 firms with combined market value of EUR 40 bn, representing 2% of the total stock market capitalisation.