French senate approves SIIC 4

The French senate this week approved the SIIC 4, the country's latest version of tax-efficient real estate investment vehicles. An amendment to the legislation includes provisions aimed at diversifying the share capital of the SIIC and preventing a single shareholder creating a SIIC.

According to researchers at merchant bank Kempen & Co, the main features of the legislation presented in the French parliament on December 13 are:

- Shareholders or shareholders working in concert are not allowed to own more than 60% in the share capital as from January 2009 of existing SIIC structures. New SIIC structures are subject to the maximum requirement as from January 2007.

- A minimum 15% free float needs to be respected with free float defined as a maximum of 2% per shareholder.

- The original proposals implied that SIICs would be subject to a specific tax based on 20% of distributions to shareholders who own more than 10% of the shares. This provision is applied if the distribution is tax exempt or if the recipient pays a tax substantially below French tax legislation. This provision would not apply if the holding company was a SIIC vehicle or a foreign company with similar status.

- The scope of the SIIC legislation would be extended to certain real estate rights. It would be possible to transfer buildings between SIIC companies. Dividends distributed by a SIIC to another SIIC owning more than 5% in the vehicle would be tax exempt.

- Furthermore specific legislation would be drafted related to hotels, restaurants and cafes.

The Kempen & Co research team said they believed the most relevant provision would be the 20% taxation for shareholders (non-SIIC or similar) owning more than 10% of the share capital. The taxation would be applicable to distributions as from July 2007.

Commenting on how SIIC 4 might impact foreign property companies active in France, the researchers said 'we do not expect a rapid sell off by Spanish and Italian companies as taxation only represents part of the costs whereas we believe investment decisions are based on the total return expectations for French property. However a potential shift in holdings in time could arise given the tax disadvantage'. In turn this could lead to takeover speculation regarding the respective 'captive' SIICs such as SFL and Gecina, they said.