The Mergers & Acquisitions Review: France

Overview of M&A activity

The covid-19 outbreak has had an unprecedented impact on contemplated and ongoing deals. With the EU Commission forecasting an 8.7 per cent contraction in Europe's economy for 2020, M&A levels declined significantly, with buyers and sellers putting deals on hold given market volatility and unpredictable earnings.3 The French M&A market remained relatively active, with French transactions representing approximately 11 per cent of all deals in Europe, the Middle East and Africa at the end of the first half of 2020.4 A series of factors can explain this trend. A high volume of transactions were announced at the beginning of 2020, prior to the lockdown period. Completion of deals was not impeded by the lockdown, thanks to the flexibility offered by certain provisions of French law. The French government has also implemented protective measures to support French companies and offset the negative effects of the crisis.

French M&A activity in 2019 is quite similar to 2018 activity, with significant deals announced in France reaching €65.3 billion in 2019 against €58 billion in 2018; unfortunately, this is far removed from the €99 billion total in 2017. While M&A transactions fell by 25 per cent in value in Europe, France recorded an increase of transactions. The number of material transactions reached 897, which is higher than the 875 transactions in 2018, but lower than the 922 transactions in 2017.5 Compared to 2018, where 21 deals each worth over €1 billion were announced, France only attracted 10 deals above the billion euro mark in 2019, although this includes one of the largest transactions of the year in Europe, with the €14.7 billion merger between Groupe PSA and Fiat-Chrysler.

The number of private equity deals has remained quite steady in 2019. With 269 private equity deals announced in 2019 representing a total amount of €15.2 billion, France received more buyouts than the UK. One striking example of this trend is the new fundraising of US$19 billion completed by the French investment fund Ardian, only a few weeks after the lockdown period.

Over recent months, French M&A activity has been driven by some large-cap deals, including the €4.9 billion bid made by Capgemini SA for Altran Technologies SA, with a view to creating a world leader in the intelligent industry, and with the tender offer over Ingenico Group initiated by Worldline for €9 billion.

Introduction

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General introduction to the legal framework for M&A

The French Commercial Code and the French Civil Code – in respect of which the provisions relating to contract law were reshaped in October 2016 and clarified in April 2018 – provide the statutory framework and form the legal basis for the purchase and sale of assets or legal entities. Additionally, the French Monetary and Financial Code and the General Regulations of the French Financial Markets Authority (AMF) provide the regulations relating to takeovers. As a general rule, French takeover rules apply if the target is a French or EU public company whose securities are listed in France and, in some instances, if the company is dual-listed. Recently, the provisions applicable to French listed companies were gathered into a specific section of the French Commercial Code to enhance the readability and accessibility of French law.

Rules relating to the financial services industry and the listing and public offering of securities are set out in the French Monetary and Financial Code and the General Regulations of the AMF. The prevention and the repression of market abuses are set forth by the EU Market Abuse Regulation,6 which has been in force in France since the enactment of the Law of 21 June 2016 reforming the market abuse repression system.7

French merger control rules are mainly contained in the French Commercial Code. These rules apply to cross-border mergers having effects on the French market (as currently defined in accordance with worldwide and French turnover thresholds) but with no 'EU dimension'. Mergers with an 'EU dimension' (i.e., involving companies whose turnover exceeds the thresholds set by the EU Merger Regulation) are instead subject to the review of the European Commission.

Within the framework of the applicable laws and the general regulations of the AMF, NYSE Euronext operates the three French regulated markets (one stock market (Euronext Paris) and two derivative markets (Monep and MATIF)), and some organised markets (such as Euronext Growth).

Strategies to increase transparency and predictability

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Developments in corporate and takeover law and their impact

i Covid-19 and corporate law

Several legal measures were adopted by the French government to soften the negative effects of the covid-19 outbreak on French corporate law:

  1. the introduction of a 'legally protected period', which began on 12 March 2020 and expired on 23 June 2020, aimed at suspending the statute of limitations (and certain other deadlines) when the expiry date occurred during the legally protected period.8 This legally protected period was adopted by the French government to prevent certain economic players from being jeopardised for failing to meet certain deadlines or implement certain administrative or judicial measures, and was also a source of concern in certain M&A transactions, notably when it came to fix a completion date or to implement pre-closing or post-closing reorganisations (e.g., mergers, demergers or share capital decrease), as the legally protected period extended some deadlines; and
  2. the rules applicable to the convening and holding of corporate governance bodies and shareholders' meetings were also simplified to allow meetings during the lockdown period. In this respect, the use of telephone or audiovisual conferencing, written consultation, and even the holding of meetings without the physical presence of shareholders or board members were allowed until 30 November 2020.9 By way of illustration, the lockdown restrictions made it impossible, for most French listed companies, to physically hold their shareholders' meeting. For technical reasons, some of these companies were not able to organise their shareholders' meeting by conference call or audiovisual conference so held them behind closed doors, as permitted by the temporary rules adopted by the French government.

In consideration of the cash flow advances and loan guarantees granted by the French state, the largest French companies were also prohibited from distributing dividends to their shareholders or from carrying out share buybacks.10

ii Squeeze-outs and fairness opinions

The General Regulations of the AMF were amended at the beginning of 2020 to improve the rules applicable to squeeze-outs and to independent experts, which shall be appointed by the board of a French listed company targeted by a tender offer in certain circumstances, to enhance minority shareholders' protection and to guarantee the independence and transparency of the independent expertise. The main developments are the following.

Two new constraints will affect tender offers initiated by a shareholder that holds, directly or indirectly, 50 per cent of the share capital or voting rights of the target and relate to (1) the conditions under which the terms of the price (or the exchange ratio) shall be disclosed to the market, (2) the timetable of these tender offers and (3) the content of the offer document (intentions of the bidder).

Minority shareholders of the target will now have a period of 15 trading days, between the filing of the draft tender offer document and the filing of the draft target offeree document, to make comments to the independent expert. The comments from the minority shareholders of the target will have to be considered by the independent expert, whose report must contain a chapter on the analysis of the points raised by the minority shareholders.

The independent expert will now have to be appointed by the board of directors, on the proposal of an ad hoc committee, which shall comprise a majority of independent members. If no ad hoc committee is constituted, the board will nevertheless appoint an independent expert. However, the AMF will have the power to reject such appointment.

iii Say on Pay reform

Under the Say on Pay regime, shareholders of French listed companies shall provide prior approval of the company's compensation policy, which comprises the principles and criteria of determination and allocation of fixed, variable and exceptional compensation components (i.e., the ex-ante vote), and shall resolve on the fixed, variable and exceptional compensation components paid within the previous financial year (i.e., the ex-post vote). As part of the transposition of an EU directive, the rules applicable to the Say on Pay regime were refined and its scope of application was extended.11

The Say on Pay regime was extended to directors and officers of French SCAs, which are, alongside French SAs, the two French corporate forms that can make offers to the public. Further, shareholders of French listed companies shall vote on the fixed, variable and exceptional compensation of each director or officer of the company by a specific resolution.

Additionally, the binding nature of the regime was also strengthened: any corporate decision resolving on the allocation of a compensation element that would be in breach of the compensation policy adopted by the shareholders shall be null and void.

iv Strengthening the foreign investment control regime

Like most G20 countries, France has implemented a foreign investment control regime, under which certain foreign investments in business sectors deemed to be sensitive (which means posing a potential risk to public order, public safety or national defence interests) require prior authorisation from the Minister of the Economy. The foreign investment regulation has been successively strengthened over the past few years, notably by expanding the list of business sectors deemed sensitive to public order, public safety or national defence interests. Since July 2019, France has also introduced a potentially more widespread use of 'golden shares' in certain strategic companies in which the state has a stake if it becomes necessary to protect national essential interests relating to public order, public health, public security or national defence. Golden shares will grant the state with blocking powers (e.g., the right to block asset disposals or transfers of intellectual property or know-how outside France) and with information rights regarding the exercise of the rights attached to the golden share. In any case, one ordinary share held by the French state may be converted into a golden share by decree and the rights attached to this golden share may also be increased or reduced by decree.

More recently, a new decree on foreign investment that entered into force on 1 April 2020 has provided useful clarification to the French foreign investment regulation and has extended its scope.12

The revised foreign investment regulation has set up a two-step review process similar to the Committee on Foreign Investment in the United States review process. Following filing of a complete authorisation request, the Ministry of Economy should complete its initial review within 30 business days (Phase I). At the end of the initial review period, the Ministry of Economy may either clear the proposed transaction or commence a 45-business-day investigation phase (Phase II).

The target can now ask the Ministry of Economy whether all or part of the target's activities could be considered sensitive, therefore falling within the scope of the control of the Ministry of Economy.

The threshold triggering the French foreign investment control regime has been lowered from 33 per cent to 25 per cent for non-EU or non-European Economic Area (EEA) investors.

The French foreign investment control regime has also been extended to new sectors, in line with EU standards; notably, energy storage and quantum technologies.

In response to the covid-19 crisis, the Ministry of Economy has further temporarily tightened the foreign investment regulation to cope with the threats that high market volatility may imply for certain strategic and sensitive sectors. In this respect, the Ministry of Economy now has power to screen acquisitions of more than 10 per cent of the voting rights in sensitive listed French companies by non-EU or non-EEA investors until 31 December 2020.13

Us antitrust enforcement: the year in review

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Foreign involvement in M&A transactions

In 2019, French companies (as bidders or target companies) were involved in two of the top three announced European deals (PSA/Fiat and GrandVision/EssilorLuxottica), and French investors were more active in acquiring outside Europe, with outbound activity valued at €94.2 billion (close to the 2017 record of €96.7 billion). In 2019, a total of 1,468 foreign investment projects were identified, with more than half being initiated by investors from outside the European Union, led by the United States, such as Teledyne's attempt to acquire Photonis International SAS and its subsidiaries for €550 million.

The clearest impact of covid-19 on the first quarter of 2020 is the downturn in Chinese investments in Europe, and a global downturn in foreign investment in the second quarter of 2020 is expected.

i Cross-border inbound deals

Material inbound M&A transactions include the €2.4 billion acquisition by Groupe Bruxelles Lambert of Webhelp SAS; the €2.226 billion acquisition of ParexGroup by SikaAG; the €1.15 billion acquisition of Domidep by I-Squared; and the €1.7 billion acquisition of DRT by Swiss company Firmenich, completed at the beginning of 2020.

ii Cross-border outbound deals

Notable outbound M&A transactions include the €9.3 billion acquisition of GrandVision, a Dutch lens retailer, by EssilorLuxottica; the €2.5 billion acquisition of a 100 per cent stake in Synthirx by French Sanofi SA; and the €6.3 billion Alstom acquisition of Bombardier's transportation division. As requested by Alstom at the beginning of August 2020, the purchase price was revised downwards: it is now expected to reach €5.3 billion.

Significant transactions, key trends and hot industries

i More activity in 2019; a health and economic crisis in 2020

As discussed in Section I, M&A activity improved in 2019 compared to 2018 but remains far from the activity levels of 2017. While the first months of 2020 gave signs of hope, the covid-19 outbreak stopped the announcement of new transactions and the French M&A market declined by 26.5 per cent to US$58.17 billion in the first half of the year.

ii Development of private equity activity

In 2019, the private equity trend remained steady in terms of deal count but faced a fall in value. Buyout and exit deals reached an aggregate value of €15.2 billion across 269 deals, which saw France receive more buyouts than the United Kingdom.

At the end of 2019, a few significant transactions were announced on the French private equity market: the €1.15 billion acquisition of Domidep by I-Squared; the Ceva Santé Animale leveraged buyout, valued at nearly €4.8 billion; the acquisition of the Elsan Group by KKR and other investors for €3.3 billion; and the new investment of approximately €2.3 billion in Galileo Global Education.

iii Most active sectors in 2019

In 2019, industrials and chemicals and business services were the most targeted sectors.

The industrials and chemicals sector was the most active sector, representing 33.9 per cent of French M&A activity in 2019. The tie-up between Groupe PSA and Fiat-Chrysler for €14.7 billion was the largest deal targeting the country in 2019.

The business services sector was the second most active sector in 2019 with the acquisition of Altran Technologies by Capgemini for €4.9 billion being a key transaction.

iv Tender offers in 2019

In 2019, tender offers slightly increased by the number of bids (30 in 2019, compared with 22 in 2018) and by the aggregate value of target companies (€16 billion in 2019 versus €12.5 billion in 2018, which was eight times less than in 2017 when the equivalent figure was €106.2 billion). Moreover, there was a significant decrease in the amount of equity acquired in 2019, with only €900 million versus €21.5 billion in 2017 and €2.6 billion in 2018.

All the tender offers initiated in 2019 were friendly, with only two operations initiated by the companies themselves (as part of share buyback programmes) or by their reference or controlling shareholders, representing 67 per cent of the aggregate value. The largest operations were the share buyback initiated by Iliad for €1.4 billion (company valuation of €7.1 billion) and the takeover bid made by Capgemini for Altran Technologies with a target company valuation of approximately €3.6 billion.

Financing of m&a: main sources and developments

i Overview of financing sources

In 2019, French companies appear to have leaned towards financing M&A transactions through cash reserves and other forms of equity, although more generally market players in Europe also resorted to leveraged loans and high-yield bonds (evidencing a 29 per cent year-on-year growth in Europe overall). Aggregate amounts borrowed in France on the syndicated loan markets appear to have decreased by 11 per cent in 2019 compared to 2018.

2019 marked the visible emergence of green bonds issuances, with France issuing more than the aggregate equivalent of US$6.57 billion bonds and being among the leading countries for such issuances along with the United States and China, as this expanding market now surpasses the high-yield market in Europe and the convertible bond market worldwide.

There is no doubt that the covid-19 crisis has had a significant impact on the economy amid growing fears that liquidity would soon become scarce for many small and medium-sized enterprises. Covid-19 has also led to a review of the terms of pre-existing financing arrangements, with a view to dealing with the impacts of the onset of the pandemic (including as regards the applicability of material adverse change clauses).

ii Covid-19 and financing

To face the unprecedented situation linked to the covid-19 pandemic, several regulatory and legislative measures have been taken by the French parliament and government to assist companies in maintaining their operations.

As indicated above, French law has provided for a legally protected period (i.e., a temporary protective framework to extend time limits applicable to all acts, claims, legal actions and other formalities that were otherwise prescribed by pre-existing statutes or regulations during this period).

In addition, the key emblematic measure designed to assist businesses in surviving the pandemic was the creation of state-guaranteed loans (PGEs) taking the form of loans granted by credit institutions benefiting from a guarantee from the French state. This instrument (which was created at the end of March 2020) is designed to address French companies' loss of income due to the drop in their activities during the pandemic. The legal framework applicable to PGEs is harmonised for all companies, provided that a number of the general features described further below can be overridden by large companies further to ministerial rulings granted on a case-by-case basis, the intricacies of which would take us far beyond the scope of this chapter. That being noted, the maximum principal amount that can be made available as PGEs is capped at 25 per cent of the company's last annual turnover figure. PGEs are open to a wide range of companies until the end of 2020, irrespective of their size and legal form, apart from some limited exceptions. PGEs as a general rule contemplate a deferred amortisation of at least 12 months to allow companies to recover from their cash deficit, and a provision giving the option to borrowers, after the first anniversary of the loan, to elect to amortise the loan over additional periods of one, two, three, four or five years (so that the PGEs' overall length cannot exceed six years). The provision of the French state guarantee to the lenders (which does not require any security interest to be provided by the borrower) covers between 70 per cent and 90 per cent of the loan amount, depending on the type of company involved (based on the criteria of turnover figures and number of employees). One final notable limitation of PGEs is that the guarantee benefiting PGE lenders would not be available to new lenders in the event of a transfer of participation in PGEs of an initial PGE lender other than to its own affiliates.

In addition to the above, a seasonal French state-guarantee loan (PGE saison) was established to assist all tourism-related sectors, which has a cap that is calculated based on the sum of the best three months of the previous financial year.

In light of the prospects of a repeat of potential confinement measures during the autumn/winter season of 2020/2021, it remains to be seen whether the PGE system will be further replicated or what other measures could be taken until the eradication of the virus.

Employment law

On 22 September 2017, the government enacted several ordinances20 that were ratified by Parliament on 29 March 2018: the Macron labour law reform has brought significant changes to French labour law with a view to simplifying the existing rules and regulations under the French labour code and granting more flexibility for employers in respect of employee management, thus attempting to make France more attractive to foreign investors. The Macron labour law reform includes provisions that may have an effect on M&A transactions: the main ones are as outlined below.

The Macron labour law reform has created a unique representative body in lieu of the existing staff delegates, works councils and health and safety committees: social and economic committees (SECs). An SEC should have been implemented in companies with 11 or more employees by 31 December 2019. SECs will replace the works councils, and will exercise similar functions to those of the works councils. As is the case for works councils, relevant compulsory consultations with SECs must be carried out within certain time limits (see Section VII.iv).

i Introduction of greater flexibility around employment restructuring

Rules governing collective redundancies for economic reasons

Under French law, to implement collective redundancies for economic reasons, employers must provide valid economic grounds justifying the redundancies. Pursuant to the Macron labour law reform, these grounds must now be assessed at the level of the French territory only (i.e., at the level of the French employer company only, or at the level of the French company and any other entities of the group located in France if those entities belong to the same business sector as the French company). Before the Macron labour law reform, such grounds were assessed at the level of the group as a whole, in France and abroad.

These amendments further progressed the simplification of the redundancy rules that had been initiated under Law No. 2016-1088, which entered into force on 8 August 2016 (the El Khomri Law). The El Khomri Law introduced two main changes to the redundancy rules: the codification of two grounds of dismissal previously only recognised by case law (restructuring aimed at safeguarding a company's competitiveness and the closure of a company); and the addition of economic indicators defining the concept of economic difficulties.

Since the El Khomri Law was enacted, economic difficulties have been mainly assessed on the basis of a significant decrease in the number of orders from or the turnover of a company, assessed by reference to a number of quarters and the number of employees within a company (e.g., in companies with less than 11 employees, a decrease of the turnover during one quarter is considered as a sufficient ground for an economic redundancy). These indicators do not constitute an exhaustive list, and any other element justifying the existence of economic difficulties can be used to justify economic difficulties. Therefore, despite these modifications, French case law will continue to be of key relevance when establishing whether a company is facing economic difficulties.

The Macron labour law reform has also provided security and visibility with regard to potential disputes arising following a dismissal by introducing a judge-binding scale of damages – the Macron scale – granted for unfair dismissals (employees with less than one year of seniority within a company can be awarded up to one month's salary, while employees with 30 years' seniority and above can be awarded up to 20 months' salary). However, since its enactment, the Macron scale has met with resistance from the labour courts, as some judges consider that the capping of damages would interfere with the right to adequate compensation granted by the Termination of Employment Convention (No. 158) of the International Labour Organization and the European Social Charter. In this context, a recent opinion of the French Supreme Court has stated that the Macron scale is in conformity with applicable law and conventions.21 However, an opinion of the Supreme Court does not have the legal value of a final ruling or precedent, nor does it bind other courts. A future ruling of the French Supreme Court on this issue is therefore awaited.

Collective mutual termination procedure

To facilitate job reorganisations and head count adjustments other than for economic reasons, the 2017 Macron labour law reform introduced an ad hoc voluntary termination procedure called the collective mutual termination procedure. Recent case law has specified that this procedure could also apply to headcount adjustments based on economic grounds.22 Under the collective mutual termination procedure, employees apply for a voluntary departure plan that must be validated by the French Labour Administration. Companies will not have to demonstrate economic difficulties before implementing such an agreement. Under the supervision of the Labour Administration, a voluntary departure plan must contain specific provisions, and in particular on the maximum number of job terminations contemplated and the modalities of information for SECs (no consultation with an SEC is required). The collective mutual termination procedure does not prevent an employer from hiring new employees either for a new position or a position occupied by an employee who agreed to the mutual termination of his or her employment contract.

ii Employees' right to make an offer to buy shares or assets in small and medium-sized companies

Pursuant to the Hamon Law of 2014, as modified by the Macron Law of 2015, companies with fewer than 50 employees, or companies with between 50 and 250 employees that fall into the category of small and medium-sized companies (i.e., companies with a turnover below €50 million or a balance sheet total below €43 million), must inform their employees of any proposal to sell 50 per cent or more of the shares of the company or the sale of the company's business as a going concern, with a view to allowing them to make an offer to purchase the shares or the business.23 The Hamon Law does not grant any priority or pre-emption rights to employees; however, the procedure does impact the timetable for a proposed transaction, and can also have an impact on the confidentiality of the transaction.

Regarding companies with fewer than 50 employees, such employees must be informed of a proposed sale no later than two months prior to the signing of the transaction. In addition, the transaction cannot take place before the expiry of this two-month period unless all employees have informed the company that they do not wish to make an offer.

In companies with between 50 and 250 employees, the employees must be informed of a proposed sale at the latest when the SEC of the company is informed and consulted on the transaction in question. Unlike in the case of companies with fewer than 50 employees, the law does not set any specific deadline prior to which the transaction cannot take place (except that the SEC consultation process will have to be completed before any binding documentation with respect to the transaction is signed, in compliance with generally applicable French employment law rules).

The law provides that employees are subject to an obligation of discretion with respect to the information that they receive by virtue of the new law. For the moment, it is not clear what information regarding a company and its activities must be given to its employees in connection with a specific procedure. According to a strict interpretation of the law, when a company informs its employees of their right to make an offer to buy the company or the business, it is not required to give information on any other potential bidders or any documents relating to the company or its strategy.24 However, should one or more employees ultimately decide to make an offer to buy the company or the business, the Hamon Law (and its implementing Decree of 28 October 2014) is silent as to the level of information that the company must provide.

Failing to comply with the obligation to inform employees that they can make an offer to purchase the shares or assets of a company exposes a seller to a monetary fine that cannot exceed 2 per cent of the value of the underlying transaction.

Following an information procedure under the Hamon Law, the contemplated sale must take place within two years of the date on which the employees are informed of the transaction; otherwise, the company must complete the information process again.

iii Reinforced role of the SEC of the target of a takeover bid

Pursuant to Law No. 2014-384, which entered into force on 29 March 2014 (the Florange Law), in a public company takeover context, the SEC of a target company must be formally consulted and issue an opinion (either positive or negative) on the takeover bid (whether friendly or hostile).

The consultation of the target company's SEC must be completed (i.e., a positive or negative opinion must be issued) within one month of an offer being filed. If the SEC has not issued an opinion within this time frame, it will be deemed to have been consulted, except in certain exceptional circumstances where the SEC can justify in court that it did not receive sufficient information about a transaction.

In any case, the board of directors or the supervisory board of the target company cannot make a decision with respect to a takeover bid (including whether to recommend the bid) until the consultation process with the target company's SEC has been completed. Note that in a situation in which the bidder has entered into a prior agreement with the target (generally called a tender offer agreement) specifying the main terms and conditions of the offer and providing for a break-up fee based on the recommendation of the target's board, it should be carefully assessed whether such agreement triggers the obligation to consult the SEC prior to its signature.

During the consultation process, the target company's SEC may ask the offeror questions about its industrial and strategic plans for the company. It may also choose to be assisted by a third-party expert (whose fees will be paid by the target company, and who will issue a report that will assess the offeror's industrial and strategic plans and their impact on the target company and its employees). The third-party expert has three weeks from the filing of the offer to issue its report.

iv Defined time limits for SECs to issue opinions in compulsory consultation situations

As indicated above, all works councils should have been replaced by SECs by 31 December 2019. The Macron labour law reform establishes the relevant time limit for SECs to issue their opinion in the event that their consultation is compulsory. Unless an agreement is reached between an employer and trade union representatives (or, failing that, the SEC) that provides for a specific time frame for their consultation, the members of an SEC must issue their opinion within the following time limits (the starting point being the date on which the employer discloses the information):

  1. one month generally;
  2. two months if an SEC is assisted by an expert; and
  3. three months in very specific situations where the consultation is carried out in a company that has one or more local SECs involved in the consultation process that are assisted by at least one expert.25

If an SEC has not issued an opinion within the relevant time limits, it will be deemed to have been consulted and to have issued a negative opinion.

v Obligations to look for a buyer in the event of the closure of a business division

Among its provisions, the Florange Law has introduced an obligation for an owner seeking to close a business to attempt to find a buyer for the business. This obligation applies to any intention to close any business division with more than 1,000 employees when such closure would result in planned collective redundancies (i.e., more than 10 employees). This obligation provides for specific information obligations towards the SEC and the employees of the target business, as well as an obligation on the company or the group to consider all offers to acquire the business and to justify any decision taken in respect of such offers to the SEC.

vi Obligations of employers to fight corruption and protect whistle-blowers

The Sapin II Law on transparency, the fight against corruption and the modernisation of the economy created two new obligations for employers aimed at fighting corruption and protecting whistle-blowers.

Since 1 January 2018, employers with more than 50 employees must implement an internal process allowing employees to report, confidentially, any of the following that they have had knowledge of personally during their employment: a crime or criminal offence; a serious and obvious violation of an international treaty ratified or approved by France; or a threat or serious damage caused to the general interest. However, facts, information or documents, in whatever format, relating to national defence secrets, medical secrecy or attorney–client privilege are excluded from the whistle-blowing right.

Employers with more than 500 employees must also implement a code of conduct that must give a definition as well as examples of what could constitute an act of corruption, and also include disciplinary sanctions to be taken if it is violated; a process allowing employees to report, confidentially; any violations of the company's code of conduct; and a training programme for executives and staff most exposed to the potential risks of corruption.

Any employee who submits in good faith a report of a violation will be considered a whistle-blower and will benefit from a specific protective status against dismissal, providing that they have had personal knowledge of the facts (which excludes deduction and speculation) and are completely disinterested (which excludes receiving financial rewards as well as any other interests).

Reports of violations must be followed by an internal investigation that must verify the truthfulness of the report. Therefore, when implementing such processes, employers must ensure their compliance with the French labour regulations, in particular with regard to the protection of employees' rights to privacy as well as with regard to mandatory information and the consultation of employee representatives, particularly when implementing monitoring devices.

vii Risk of requalification of equity instruments granted to managers (management packages) as remuneration subject to social security charges

The Paris Court of Appeal ruled in July 2017 that gains realised by managers upon the sale of equity instruments (warrants in the case at hand) in the context of a leveraged buyout exit, when such instruments were granted to managers (because of their status) and kept by the latter to the extent that they remained within a company, should be considered as a salary for social contributions purposes (i.e., the gain would be subject to social contributions at a rate of around 40 per cent to 50 per cent on an employer's part, and around 20 per cent to 30 per cent on an employee's part).26

Indeed, it was held that the conditions under which such warrants were granted (to employees only) and may be kept (for as long as the beneficiaries remain within a company) establish a strong link with the employment agreement or corporate office (e.g., directorship) of the relevant beneficiary.

The case was referred to the French Supreme Court, which confirmed the analysis of the Paris Court of Appeal insofar as it approved that its finding that such gains should be considered as salary as long as they were granted to managers because of their status of employee or corporate officer of the company.27 However, contradicting the Paris Court of Appeal, it considered that the basis for calculating the related social security contributions was the acquisition gain and not the capital gain on disposal. In turn, the Supreme Court remanded the case back to the Paris Court of Appeal, but made up of a different panel of judges. Should the decision be confirmed, it cannot be ruled out that this principle would apply to any kind of equity instrument awarded in the same circumstances as the ones at stake. The final outcome of this litigation will need to be monitored closely, considering its potential significant impact on the cost of management packages.

viii The PACTE Law

Published on 23 May 2019, the PACTE Law provides for a large set of rules intended to increase employees' involvement in company decisions and achievements, notably by promoting employee share ownership, enhancing employee representation on boards of directors and supervisory boards and promoting employee profit-sharing and saving plans.

Promotion of employee share ownership

The conditions for the allocation of free shares have been simplified and broadened. In particular, the French Commercial Code limits the total number of free shares that could be granted by a company to its employees and managers to a maximum corresponding to 10 per cent of the share capital. Article 163 of the PACTE Law provides that, for the purposes of this limit, free shares that have not been definitively allocated at the end of the vesting period, or those that are no longer subject to the retention obligation, are no longer taken into account.28 In addition, Article 162 et seq. of the PACTE Law supports the development of employee share ownership by allowing, under certain conditions, the allocation of shares to employees in simplified joint-stock companies and by allowing employers to contribute unilaterally to employee share ownership funds.

Enhancement of employee representation on boards of directors and supervisory boards

The law provides for an increased number of employees on boards of directors and supervisory boards. More specifically, the boards of directors and supervisory boards of companies with more than 1,000 employees in France (including subsidiaries) or 5,000 employees in France and abroad (including subsidiaries) must include at least two employees when the number of non-employee board members exceeds eight (instead of 12) and at least one employee when the number of non-employee members is less than or equal to eight (instead of 12). In parallel, the scope of the exemption from the obligation to appoint employees within boards of directors and supervisory boards has reduced. In particular, public holding companies with less than 50 employees, which had so far been exempted from this obligation if one of their subsidiaries had appointed employees as board members, are no longer exempt.

Promotion of employee profit sharing and saving plans

Companies with fewer than 50 employees are exempted from the 20 per cent employer flat contribution on amounts paid for mandatory profit sharing and voluntary profit sharing, as well as on payments into an employee savings plan. Companies with 50 or more employees and less than 250 employees are also exempted from this contribution, but only on the amounts paid as voluntary profit sharing.29 Such measures originated from parliamentary discussions about the PACTE Law but were enacted in Law No. 2018-1203 of 22 December 2018 on the financing of social security for 2019.

Tax law

i Hybrid mismatch rules

Prior to the coming into force of the French Finance Law for 2020 (i.e., for fiscal years commenced before 1 January 2020),30 hybrid mismatches were dealt with under French tax law through the general prism of limitation of interest expenses deductibility. More precisely, hybrid mismatches were in principle captured by the rule whereby interest expenses paid to associated enterprises31 were allowed to be deducted only to the extent that the corresponding income was subject to a minimum 25 per cent corporate income tax at the level of the lender. However, such a rule turned out to have both limited efficiency (the 'subject to tax' rule was only performed at the level of the lender without any analysis of how such entity was itself financed) and side effects (in particular, the scope of such a provision was potentially larger than hybrid mismatches).

The French Finance Law for 2020 has now transposed into French law32 the Anti-Tax Avoidance Directive II33 governing hybrid mismatches between associated enterprises as well as structured arrangements34 (including between non associated enterprises).

The new rules apply to the following situations (double-dip, deduction and no-inclusion situations):

  1. payments under financial instruments that give rise to a deduction in the state of residence of the payer, whereas they are not included in the taxable income in the state of residence of the beneficiary (for instance, repurchase agreements);
  2. payments to hybrid entities35 that are deductible in the state of residence of the debtor and that are not included in the taxable income in the state of residence of the entity;
  3. payments by a hybrid entity that are deductible in the state of residence of that entity and that are not included in the taxable income of the beneficiary;
  4. payments that are made to an entity holding one or more establishments that are deductible in the state of residence of the debtor and that are not included in the taxable income of that entity, if the mismatch results from differences in the allocation of these payments between these establishments, or between one establishment and the headquarters;
  5. payments that are made to an establishment that are deductible in the state of residence of the debtor without these payments being included in the taxable income of that establishment in another state, if the mismatch results from the fact that the establishment is disregarded for tax purposes in that state;
  6. payments that are deemed to be made between an establishment and its corresponding headquarters, or between two establishments, if these payments are not included in the taxable income of the beneficiary but give rise to a deduction in the state in which the establishment is situated;
  7. double-dip situations; and
  8. imported mismatches.36

As regards the treatment of such situations:

  1. if the payments are made pursuant to a deduction or no-inclusion scheme, the deductible expense in France is not allowed to be deducted, or, if the expense has been deducted in the state of residence of the beneficiary, it is added back to the taxable income in France;
  2. if the payments are made pursuant to a double-dip scheme, the expense is not allowed to be deducted from the taxable income in France (whether it is the taxable income of the investor or of the beneficiary); and
  3. in terms of imported mismatches, the deductible expense in France is not allowed to be deducted.

The new provisions are based on a two-step approach: first, it is up to the state of the investor to refuse the deduction so as to neutralise the mismatch (the 'primary rule'); failing that, it is up to the state of residence of the beneficiary to do so (the 'defensive rule').

Specific rules target tax residence mismatches. This refers to situations in which payments, expenses or losses give rise to a deduction within two jurisdictions because the taxpayer is considered as a tax resident of both states. In this case, the deduction is not allowed in France, apart from if the payment is included in the taxable income of the beneficiary, or if the other state is an EU Member State, refuses to allow the deduction, and has signed a double tax treaty with France providing that the taxpayer is deemed to be a French tax resident.

Finally, additional specific rules apply to hybrid transfers,37 which target transfers aimed at providing withholding tax relief (in this case, this relief is limited to the proportion of the corresponding taxable net income).

ii Mergers and demergers involving 100 per cent held subsidiaries

The law aiming to simplify the Corporate Law of 19 July 201938 had previously added provisions regarding the specific case of mergers and demergers between sister companies held at 100 per cent by the same parent company. Indeed, in this situation and as a result of the aforementioned law, there is no longer the need to perform a capital increase of the merging entity.

Since this reform, the applicability of the favourable French tax merger regime has been subject to discussions because a condition for the application of this regime was that the shareholders of the absorbed company had to receive shares in the absorbing company (or in the beneficiary of the contribution) for this operation to be neutral from a tax standpoint. Articles 210-0A and 301F, Appendix II of the French Tax Code have therefore been changed accordingly, and they now provide for the applicability of the tax neutral regime to these cases, notwithstanding the absence of capital increase. This new provision applies for the favourable French tax regimes applicable to both corporate income tax and registration fees.

iii Deduction of interest expenses

The French Finance Law for 201939 had set out a new mechanism limiting the deduction of interest expenses, thus transposing the Anti-Tax Avoidance Directive I (ATAD I).40 For the record, for fiscal years beginning 1 January 2019, for non-thinly capitalised companies the deductibility of interest is limited if and to the extent that the net borrowing costs of the concerned taxpayer exceed the higher of 30 per cent of its EBITDA and €3 million.

A safe harbour rule applies for companies that belong to a consolidated group for financial accounting purposes: taxpayers are allowed to deduct an additional 75 per cent of the amount of net borrowing costs not allowed for deduction under the general limitation rule described above, provided that the ratio between their equity and their total assets is equal to or greater than the same ratio determined at the level of the consolidated group for financial account purposes to which they belong. As a tolerance measure also set out in ATAD I, this condition is deemed to be met if the taxpayer's ratio is lower than the group's as a whole by a maximum of two percentage points.

The French Finance Law for 2020 has added a similar safe harbour rule as regards companies that do not belong to any consolidated group.41 They are now allowed to deduct an additional 75 per cent of the amount of net borrowing costs that are not allowed for deduction under the above-mentioned general limitation, and under no additional condition.

Competition law

The French Competition Authority has had responsibility for merger control since 2009, and has increasingly adopted a more efficient approach to the application of its rules. In 2019, 270 concentrations were reviewed and cleared by the Authority, nine of which were cleared conditionally (that is, with remedies or injunctions).

It is also important to note that for the first time in 2018, the Minister of Economy made use of his power to evoke a case. Subsequent to an in-depth examination, the Competition Authority had cleared Cofigeo's acquisition of securities and assets of the ready meal branch of Agripole42 subject to the divestment of both a production site and a brand. Without such injunctions, not only would Cofigeo become the undisputed leader in most of the relevant markets, but it would also own all the best-known brands in the sector. The remedies, therefore, aimed at preventing the price increase regarding essential goods.

The Minister of Economy made use of his power to evoke a case no later than on the day the Competition Authority's decision was issued. This power enable the Minister of Economy to review the merger in question on the basis of public interests (other than the protection of competition), such as industrial developments or the stability of employment. The Minister highlighted that the target company was facing severe financial difficulties and that Cofigeo was an important job provider in a difficult employment area. The transfer of assets ordered by the Competition Authority would have exposed Cofigeo and its employees to insolvency.

As a result, the Competition Authority's decision will not be implemented and shall be replaced by that of the Minister of Economy.

On 28 August 2020, the French Competition Authority prohibited a merger for the first time since it was invested with merger control power in 2009.43 In this case, the retailer Soditroy and the Association des Centres Distributeurs E Leclerc (Leclerc) intended to acquire joint control of a competing hypermarket. Prior to the transaction, the relevant geographic area included two Carrefour hypermarkets and a Soditroy-owned Leclerc one, in addition to the target. The Authority considered that the transaction would create a duopoly between the retailers Carrefour and Leclerc and lead to significant risks of price increase for consumers. To alleviate these concerns, the notifying parties had offered to reduce the surface of the target hypermarket. The Competition Authority, however, held that these remedies would not solve the competition issues identified.

i Application of the merger control guidelines of 23 July 2020

New guidelines on merger control were adopted by the Competition Authority on 23 July 2020, thus revising the previous guidelines dated July 2013.

The revised guidelines are mainly a redesign of the previous ones, although they take into account the experience of the Authority and case law since 2013 and set out changes in the existing procedure.

As regards procedural processes, businesses can now request the appointment of a rapporteur in charge of the case and are provided with their contact details within five working days of the request. The guidelines furthermore ensure that the Authority will indicate to the notifying party whether their file is complete or not within 10 days of the notification. The scope of the simplified notification procedure is also clarified and extended, following the Authority's intent to increase the proportion of transactions that fall under the simplified procedure from 50 to 70 per cent of the transactions eligible for the simplified procedure, with a view to streamline the notification procedure. The revised guidelines also reproduce the provisions contained in a decree dated 25 April 2019 on the simplification of merger procedures, which in particular raises from 25 per cent to 30 per cent the threshold from which a market is considered to be affected for the analysis of vertical effects. The guidelines also deal with the online notification procedure launched by the Authority on 18 October 2019, for which transactions subject to the simplified notification procedure are eligible.

As regards the substantive analysis, the 2020 guidelines recast the analysis of the effect of concentrations. They thus present a list of the relevant elements to consider: market shares, the level of market concentration, the characteristics of the businesses, the characteristics of the products or services, the characteristics of the parties' consumers or suppliers, the characteristics of the market, and the potential competition sources. A new appendix is dedicated to the competitive pressure in online sales, and the guidelines also consider the situation of two-sided markets. As far as the Authority's prospective analysis is concerned, the guidelines now state that it takes into account 'current or anticipated developments within a reasonable time frame, which depends on the specificities of the sector'. They also include, within a single section, all the possible remedies to be offered by the parties, which also provides an interesting view of the relevant decisional practices of the Authority with respect to remedies since 2013.

Finally, the revised guidelines integrate the recent case law regarding gun jumping in the section dedicated to procedural infringements.

ii Substantial penalties for gun jumping

When French thresholds are met, a pre-merger filing is mandatory. This applies to all concentrations, including foreign-to-foreign transactions, even in the absence of an overlap between parties' activities.

Individuals and companies acquiring control of all or part of an undertaking are responsible for notifying. In the case of a merger, this obligation is incumbent upon the merging entities. In the case of a joint venture, parent companies must file a joint notification.

Sanctions for not filing or for closing before clearance are as follows:

  1. corporate entities: up to 5 per cent of the turnover in France during the previous financial year (plus, where applicable, that of the acquired part generated in France); and
  2. individuals: up to €1.5 million.

An example of a sanction for the first type of gun jumping (i.e., for failing to notify) can be found in Case No. 13-D-22.44 On 26 December 2013, the Competition Authority imposed a fine of €4 million on Castel Frères, a company active in the wine sector, for failing to notify an acquisition. This merger had been reported to the Authority by a third party in the context of the examination of another acquisition by Castel Frères. The fine was reduced to €3 million on appeal.45

Regarding the second type of sanction for premature implementation, the Competition Authority imposed a fine for a breach of the standstill obligation for the first time in 2016. In the Altice/SFR case, shortly after having cleared this merger, the Authority conducted a dawn raid on the premises of the companies, and found evidence that Altice was involved in SFR's business and strategy prior to clearance, notably in approving the participation of SFR in a public tender, assisting SFR in renegotiating a network-sharing agreement with Bouygues Telecom, determining the prices of SFR internet retail offers and coordinating with SFR in the context of OTL's acquisition. As a result, on 8 November 2016, the Competition Authority imposed a fine of €80 million on Altice Group for implementing two transactions prior to obtaining merger control clearance.46 This is one of the highest global fines ever enforced for such a practice.

Finally, parties may be required, subject to a periodic penalty for non-compliance, either to file a concentration or to demerge. Transactions that have been completed without clearance are illegal and not enforceable. There are no criminal sanctions for not filing.

iii Diversification of remedies that can be imposed by the Competition Authority

Regarding commitments and injunctions, in its revised merger control guidelines the Competition Authority provides several examples of its decision-making practice, which is characterised by a preference for structural remedies (e.g., divestment of minority shareholdings). However, in the case of complex transactions, the Authority pragmatically accepts behavioural remedies, of which it provides several examples. In that respect, in 2019 the Authority published a 'Study on Behavioural Remedies', with a view to provide a summary analysis of decision-making practice dealing with such remedies, while providing material for broader discussion on the adaptation of the Authority's intervention method and its application of behavioural remedies in its upcoming decisions. In that context, the study underlines that, from 2009 to 2017, behavioural remedies were accepted in 55 per cent of clearance decisions in which competition concerns were identified (i.e., out of 68 decisions that were subject to commitments) Overall, although the Authority emphasises the plasticity and flexibility of behavioural remedies, it nevertheless underlines its will to favour structural remedies where they provide a better response to the competition issues, particularly because of the complex and time-consuming monitoring behavioural remedies require. The trend towards behavioural remedies increased in 2019, when, out of the nine concentrations the Authority cleared subject to remedies, four were conditionally approved on structural remedies,47 two on behavioural remedies48 and three on combined remedies.49

As an example of a decision authorised subject to behavioural remedies, the Authority cleared, after a thorough analysis, the creation of a joint venture (Salto) between the TV channels TF1, France Télévisions and Métropole Télévisions, subject to commitments aiming to prevent coordination risks between the parent companies. The behavioural remedies notably included commitments to limit possibilities for joint purchases, as well as commitments to market advertising space to Salto under objective and non-discriminatory conditions.50

Note that, among the seven cases cleared partly or wholly based on structural remedies in 2019, the Competition Authority accepted fix-it-first commitments in one case, to remedy the anticompetitive effects of the acquisition of Alsa by Dr Oetker (Ancel).51 Within the market for the production and marketing of dessert mixes to supermarkets and hypermarkets, the Competition Authority identified the risk of a price increase following the completion of the transaction, as well as a lack of credible alternative suppliers. The Competition Authority addressed the aforementioned competition concerns in advance and granted Dr Oetker approval to enter a trademark licensing agreement for Ancel mixes for a duration of five years, renewable once. Thereafter, the licence would be conceded to Sainte Lucie, which is active in a distinct market, namely the market for the production and marketing of baking aids to supermarkets and hypermarkets. Sainte Lucie's consistent growth over the past few years served to assure the Competition Authority of a credible alternative in the relevant market.

It is important to note that the Competition Authority carefully monitors the implementation of remedies, and may withdraw an authorisation in cases of non-compliance. In such a case, the parties will have to either restore the situation to how it was before the transaction (i.e., unwind the operation) or re-notify the transaction to the Competition Authority within a month. Compliance with commitments by companies is central to the process of French merger control. The power of the Authority to withdraw merger approvals was validated in 2012 by a decision of the French Constitutional Court in the context of the appeal by Canal Plus and Vivendi against an order to re-notify the purchase of its former rival TPS.52 The Authority withdrew its approval on the ground that Canal Plus Group did not fulfil several commitments that were attached to the authorisation decision.

If such non-compliance with remedies is confirmed, the Competition Authority is also able to impose financial penalties on the notifying parties of up to 5 per cent of their net turnover achieved in France. In this regard, in 2018, the Competition Authority fined the Fnac and Darty Group €20 million for non-compliance with commitments made when Darty was taken over by Fnac.53

iv Contemplated changes in the French merger control regime

The French Competition Authority's examination of transactions that do not meet the relevant thresholds but may affect competition is ongoing. Since 2018, the Authority has been contemplating an ex-post control system for concentrations that do not fall within the Commission's jurisdiction but that present substantial competition concerns in France.

A law proposal, according to which any concentration likely to affect the French market involving structuring businesses would be notifiable even where the turnover thresholds are not met, had been introduced before Parliament to combat killer acquisitions (i.e., acquisitions by dominant companies of small innovating companies with a significant value potential but limited revenues). However, on 30 September 2020, the government opposed this law proposal, and decided to wait for the outcome of the European Commission's actual works on this matter.

On the same topic, the French Competition Authority refused to review a non-notifiable concentration through the lens of dominant position in a decision adopted in January 2020.54 In this case, Towercast argued that TDF's acquisition of Itas, completed in October 2016 without prior clearance as the French thresholds were not exceeded, nevertheless constituted an abuse of dominant position. Towercast was mainly referring to the judgment issued by the Court of Justice in the 1973 Continental Can case at a time when there was no merger control regime at a European level. The Competition Authority confirmed that the EU Merger Regulation is intended to apply solely and exclusively to concentrations and to exclude the application of any other provision of competition law and, as a consequence, held that a concentration that does not trigger turnover thresholds cannot be reviewed ex post on the ground of abuse of dominant position. The Competition Authority nonetheless indicated that Article 22 of the EU Merger Regulation should in principle enable a national competition authority to request that the European Commission assess a merger that does not have a European dimension but would threaten to significantly affect competition within the territory of the Member State or States making the request, regardless of the Member State's own jurisdiction to control the merger.

The Competition Authority has therefore welcomed the new approach announced in September 2020 by Margrethe Vestager regarding referrals of merger transactions by national competition authorities to the European Commission pursuant to Article 22 of the EU Merger Regulation. Prior to this, the European Commission had always stated that it would only accept a referral if the merger transaction exceeded the national notification thresholds in at least one Member State. Amending its policy in this field, the European Commission announced that it would agree, as of mid-2021, to examine referral requests pursuant to this Article submitted by national competition authorities, including when the merger transactions concerned do not exceed the national notification thresholds of any Member State, providing that the conditions established in this Article have been met.

Outlook

The covid-19 crisis slowed down the French M&A market for a few weeks but did not challenge the transactions that were initially announced. Deal volumes seem to be back to their pre-crisis levels and significant transactions that were contemplated in the first half of 2020 may be announced in late 2020 or in the first months of 2021. For instance, Veolia recently announced its intention to buy out its historical competitor Suez, a French public company valued at approximately €9 billion, through the acquisition of the equity stake held by Engie (approximately 29.9 per cent of the share capital), followed by the launch of a voluntary tender offer over the remaining securities of Suez.

The covid-19 crisis could also have a medium-term effect on the way M&A operations are negotiated and conducted in France. In the coming months, price adjustment clauses, material adverse change clauses and other buyer protection mechanisms could be increasingly present in contractual documents of M&A transactions.

Footnotes

1 Didier Martin is a partner at Bredin Prat.

2 Financial data extracted from Mergermarket, 'Trend Reports Q1–Q4 2017 and 2018 (France)'.

3 EU Commission, Press Release, 7 July 2020.

4 Financial data extracted from Mergermarket, 'Deal Drivers EMEA HY 2020'.

5 Financial data extracted from Mergermarket, 'Trend Summary Reports Q1–Q3 and FY 2019 EMEA (France)', 'Global & Regional M&A Report 1Q20 (Europe)' and 'Deal Drivers EMEA HY 2020'.

6 Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation).

7 Law No. 2016-819 of 21 June 2016 reforming the market abuse repression system.

8 Order No. 2020-306, pursuant to Law No. 2020-290.

9 Order No. 2020-321 of 25 March 2020 and Decree No. 2020-925 of 29 July 2020.

10 French Ministry of Economy, 'FAQ – Liability commitments from large companies benefitting from cash support measures', 5 May 2020.

11 Order No. 2019-1234 and Decree No. 2019-1235 of 27 November 2019.

12 Decree No. 2019-1590 of 31 December 2019.

13 Decree No. 2020-892 of 22 July 2020.

14 Financial data extracted from Mergermarket, 'Trend Report Q1–Q4 2018 (France)'.

15 Financial data extracted from Mergermarket, 'Trend Report Q1–Q4 2019 (France)'.

16 Les Echos, 'Bond du contrôle des investissements étrangers en France', 18 June 2020.

17 Financial data extracted from Mergermarket, 'Trend Report Q1–Q4 2018 (France)' and 'Deal Drivers EMEA FY 2018'.

18 Financial data extracted from Mergermarket, 'Trend Report Q1–Q4 2019 (France)' – 'Global & Regional M&A Report 1Q2020'.

19 Financial data extracted from the Observatory of Tender Offers 2020 report.

20 Ordinances Nos. 2017-1385 to 2017-1389 dated 22 September 2017; and Ordinance No. 2017-1718 dated 20 December 2017.

21 Opinion of the Court of Cassation, 17 July 2019, No. 19-70.011.

22 Administrative Court of Cergy-Pontoise, 16 October 2018, No. 1807099.

23 These provisions of the Hamon Law do not apply to companies that are subject to insolvency proceedings.

24 The guidelines that have been published by the French Ministry of Labour for the implementation of the Hamon Law confirm this approach.

25 Decree No. 2017-1819 dated 29 December 2017, Article 1.

26 Paris Court of Appeal, 6 July 2017, No. 14/02741.

27 French Court of Cassation, 4 April 2019, No. 17-24.470.

28 Article L.225-197-1 of the Commercial Code, amended.

29 Article L.137-15 of the Social Security Code.

30 Finance Law for 2020 (Law No. 2019-1479 of 28 December 2019).

31 Under the provisions laid down in Article 205B of the French Tax Code (FTC), an enterprise is associated to the taxpayer if the latter directly or indirectly holds more than 50 per cent of its voting or financial rights, if the latter is held by the former at 50 per cent or more (voting or financial rights), if it is a sister company held at 50 per cent or more by a parent company that holds 50 per cent or more of the taxpayer (voting or financial rights), or if it is any entity belonging to the same consolidated group as the taxpayer or any entity over which the taxpayer exerts a significant influence or that exerts a significant influence over the taxpayer.

32 Articles 205B, 205C and 205D of the FTC. Article 205C of the FTC is applicable for fiscal years commenced on or after 1 January 2022.

33 Directive 2017/952 of 29 May 2017 amending Directive 2016/1164 as regards hybrid mismatches with third countries.

34 A structured arrangement consists of using a hybrid mismatch by pricing it into the terms of the arrangement or by bringing about the very same result as such a hybrid mismatch. The taxpayer is entitled to rule out this provision if he or she demonstrates that he or she was not aware of the existence of such a mismatch, as well as any associated enterprise, and that he or she has not benefited from the corresponding tax advantage.

35 An entity is hybrid if it is disregarded for tax purposes within one state, and if it is considered to be taxable in this state by another state. The upcoming Article 205C of the FTC, expected to come into force for fiscal years commencing on or after 1 January 2022, addresses the question of reverse hybrids; that is, arrangements in which one or more associated enterprises (i) directly or indirectly hold 50 per cent or more of the share capital, financial rights or voting rights of a hybrid entity, which is incorporated or established within a Member State of the European Union, and (ii) are established within one or more states that regard this entity as a taxable person.

36 This refers to situations in which a payment gives rise to a deduction in France, and, at the same time, directly or indirectly offsets another payment that corresponds to a hybrid mismatch within another jurisdiction, by means of transactions concluded between associated enterprises or by means of a structured arrangement.

37 Hybrid transfers refer to arrangements aimed at transferring a financial instrument when the return of the underlying asset is treated, from a tax standpoint, as obtained by more than one of the parties to the arrangement.

38 The Soilihi Law (Law No. 2019-744 of 19 July 2019).

39 Finance Law for 2019 (Law No. 2018-1317 of 28 December 2018).

40 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.

41 Article 212 bis, Section VI bis of the FTC.

42 Case No. 18-DCC-95.

43 Case No 20-DCC-116.

44 Situation of the Castel Group in light of Article 430-8 of the Commercial Code, decision dated 20 December 2013, Case No. 13-D-22.

45 Judgment of the Supreme Administrative Court dated 15 April 2016, Appeal No. 375658.

46 Situation of the Altice Group with regard to Section II of Article L.430-8, decision dated 8 November 2016, Case No. 16-D-24.

47 Cases Nos. 19-DCC-36, 19-DCC-141, 19-DCC-221 and 19-DCC-244.

48 Cases Nos. 19-DCC-76 and 19-DCC-157.

49 Cases Nos. 19-DCC-15, 19-DCC-147 and 19-DCC-180.

50 Case No. 19-DCC-157.

51 Case No. 19-DCC-15.

52 Case No. 2012-280 further to a request for a preliminary ruling on a question of constitutionality.

53 Case No. 18-D-16.

54 Case No. 20-D-01.

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