Advantages of a SIIC. Valérian Conrad-Bruat Edouard Chapellier. 10 May 2006

Transcription

1 Advantages of a SIIC Valérian Conrad-Bruat Edouard Chapellier 10 May 2006

2 Summary 1.Introduction 2.What is a SIIC? 3.General Tax Incentives of SIICs 4.Tax Competitive Advantage of SIICs in bid offers 1

3 1.- Introduction Sociétés d investissements immobiliers cotées were introduced by the Finance Bill 2003 and decree n of July 11th 2003 to improve economic competitiveness for French listed real estate companies. A reform that is in line with the international economic context to help to maintain the position of the listed real estate sector of Paris stock market in a European context to confirm the on-going role of such companies in the long-term financing of real estate assets to contribute to the standardisation of their tax environment within the European context A reform to create a dynamic listed real estate sector with a local operating and financial base the sector requires access to the public savings markets to supply long term financial resources which combine both equity and loan finance, for durations as long as the market can offer the tax system for French listed real estate companies does not currently offer a satisfactory answer to the industry's requirements, as revenues are taxed once on distribution by the company and a second time in the hands of the recipient who receives, at best, a partial tax credit for the corporation tax paid 2

4 French listed property companies (SIIC) Market capitalization on 02 March ,000 6,955 7,000 6,569 6,000 5,000 4,547 4,000 3,000 2,000 2,142 1,939 1,819 1,648 1,633 1, Gécina Unibail Klépierre SFL Foncière des régions Bail Investissement Silic Mercialys Altarea Foncière des Murs SIIC de Paris Société de la Tour Eiffel Acanthe Développement Foncière des Pimonts Affine 3 (in m )

5 Stock exchange performance Gécina 3,7% 13% Deutsche Wohnen 3,6% 46% Unite Group 2,4% 11% Silic 2,1% 18% Unibail 0,9% 25% SFL 0,4% 9% Grainger Trust 0,2% 3% Klépierre 0,1% 22% Mercialys -0,2% 5% Conwert Immobilien -0,9% 7% As from January 2006 Between 18 and 21 April 2006 Source Bloomberg 4

6 2.- What is a SIIC? A corporation. listed on a French regulated stock exchange, with a minimum share capital of 15 million, whose principal purpose is the acquisition of property with a view to letting it, and (ancillary activities < 20% of the SIIC s assets) having elected to be treated as a SIIC A SIIC has to respect some IPO requirements : a minimum of three properties have to be held 15 million of shares have to be offered to the public the SIIC's turnover has to amount to a minimum of 5 million A SIIC may be a foreign-incorporated company be listed in markets other than the French one exercise a (significant?) part of its activity outside France 5

7 3.- General tax incentives of SIICs A number of drawbacks of being a SIIC Exit tax of 16.5% on existing portfolio, payable over 4 years Obligation to distribute: 85% of all income 50% of all capital gains (within 2 years) 100% of dividends from SIIC subsidiaries Corporate shareholders do not get: participation exemption for corporate income tax purposes EU withholding tax exemption (but treaties may remedy this: e.g., Germany, Spain). 6

8 3.- General tax incentives of SIICs for a very favourable tax regime: Full exemption from corporate income tax for the SIIC and its subsidiaries having elected, on: Profits from letting and subletting activities Capital gains on sale of: (a) real estate assets, (b) shares in tax transparent subsidiaries having a predominant real estate activity, (c) shares in subsidiaries which have elected for the SIIC regime and (d) real estate leasing agreements Dividends distributed by subsidiaries which have elected for the SIIC regime 7

9 4.- Tax competitive advantage of SIICs in bid offers Capital gains made by the selling corporation upon the sale of the property: subject to a reduced 16.5% corporate tax rate (effective tax rate of 17.04%) - instead of a regular corporate income tax rate of 34.43% Obligation for the acquiring company (the SIIC) to hold the acquired real estate property for 5 years in case of transfer within the five-year period, there is no claw-back for the selling corporation, but the acquiring company is subject to a fine equal to 25% of the sale value of the property or rights Available to all listed real estate companies (not only SIICs) Tax holiday valid until 31 December 2007 (?) 8