12 Jan The disposition of the Accounting Standard Authority (ANC) relating to mergers, contributions and universal transfer of heritage (TUP) has just been approved
The disposition ANC n° 2017-01 modifying the disposition ANC n° 2014-03 (PCG) about the accounting treatment of the operations of mergers and assimilated was approved by decree on December 26th, 2017.
By PwC, author of accounting memento and of Accounting fast leaf
The operations of fusions, scissions, partial contributions of asset and TUP realised from the 1st January 2018, must now be treated in accordance with the new regulation ANC n° 2014-03 which has just been approved by decree on December 26th, 2017 (JO of the 30).
According to the operations concerned, the implementation of this regulation will follow as mentioned below:
– Mergers, scissions, partial contributions of assets: operations for which the treaty was subject to formalities of deposit and publicity from the 1st January 2018;
– Dissolution by confusion of heritage (or universal transfer of heritage or TUP): operations whose decision is published in an official newspaper from the 1st January 2018.
The main changes presented by the regulation ANC n° 2017-01 are the following ones:
Operations realised between entities under the control of individual
The exclusion of these operations from the application’s field of the rule which have problems of interpretation relating to the rules of revaluation to be retained, the ANC precise some details (modified PCG Article 741-1).
The ANC indicates that the concept of control as well as the direction of the operation is appreciated only on the level of the entity. Consequently, the ultimate control exerted by one or many individuals should not be taken into account in the determination of the values of contribution to retain. It results from it that a fusion realised between two entities without link of control between them and under control of the same physical person should be revaluated at fair value.
On the other hand, a partial contribution of asset realised between two entities without link of control between them and under control of the same physical person is revaluated at fair value or the carrying amount depending on the direction of the operation.
These details confirm the treatment recommended in our Memento Mergers & Acquisitions 7639.
Operations under joint control
The operations affected are those operating a change of control: passing from exclusive control to joint control, in case of creation of joint-ventures, and conversely.
The ANC removed the choice of the method of revaluation of the contributions which existed in practice during the creation of an entity under joint control. Henceforth, the contributions intended to create joint-ventures are evaluated at fair value (except when they are realised between entities under common control; in this situation indeed, the carrying amount is to be retained) (modified PCG Article 743-2).
Exemption for insufficiency of net assets or negative net asset
The fair value of contributions is now to retain in the operations under common control when the carrying amount is negative and thus does not allow the release of the capital (provided that the fair value is higher than the capital increase realised by the beneficiary company of the contribution, increased by the bonus) (PCG Article 743-3 and details appearing in the Collection of the accounting standards).
Partial contribution of asset forming an autonomous branch of activity
The disposition of ANC retakes the tax definition of the autonomous branch of activity to confirm the absence of divergence of qualification between accounting and taxation (modified PCG Article 710-2).
Contributions of share
The contributions of share that give the control of the participation in the beneficiary entity of the contributions are now considered as partial contribution of asset. It results that concomitant contributions of share realised under common control by several entities to the same beneficiary entity and conferring this entity the control of the participation must be revaluated at the carrying value even if, individually, they do not confer the control of the participation and should be revaluated at fair value if they were brought separately (modified PCG Article 710-2).
Date of evaluation of the contributions at fair value in an operation with retroactive effect
The disposition confirms that the date of evaluation of values to be mentioned in the treaty of contribution is the date of retroactive effect (PCG Article 744-1 modified).
Transborder operations
Non- established treaty in compliance with the rules of revaluation defined by the PCG
The Collection of accounting standards specifies that the French rules of revaluation cannot be imposed on the foreign company. Consequently, in the event of operation carried out between the acquiree company or contributing foreign entity and an acquiring or beneficiary entity of French contributions (modified PCG Article 720-1):
– the treaty can be established by retaining non-complying values with the French rules of revaluation of the contributions (so, retain the true value for an operation realised under common control);
– the acquiring company or beneficiary of French contributions records the contributions without reprocessing of the values appearing in the treaty.
Partial contribution of asset between a French contributing entity and a foreign entity
The disposition confirms that the entry cost of shares received in return of the partial contribution of asset by the contributing company must be equal to the value of the contributions retained in the treaty of contribution (PCG Article 221-1). It is moreover specified that this article is applied as well for the remuneration of a contribution to the profit of a foreign entity or a French entity.
Consequently, it is not possible any more to record shares according to another value of contribution than that one registered in the treaty on the pretext only that it is not in compliance with the rules of the PCG. It is thus impossible to record shares received with the carrying value of the contributions if they are revaluated at fair value in the treaty (modified PCG Article 720-1).
Treatment of the badwill
The disposition confirms that when the global value of the contributions is lower than the sum of assets and liabilities brought, of the fact of the existence of prospective liabilities, a badwill must appear in the treaty of contribution, for the difference between this global value and the sum of the individual values. In the accounts of the absorbing entity or beneficiary of contributions, this badwill is recorded in the equity (in a subsidiary account of the bonus of merger or contribution) (modified PCG Article 744-1 and 744-2).
Harmonization of the accounting methods post operation
The regulation modifies the methods of harmonization of the accounting methods post operation, in the accounts of the absorbing company or beneficiary of contributions, in order to avoid immediate compulsory impacts in the equity (or as a result) (PCG Article 744-3).
To note: for more details: see our FRC12/17 “New regulation of the ANC on mergers, contributions, Universal transfer of heritage…: prepare your operations 2018”.
Decree of December 26th, 2017, JO of the 30; www.legifrance.gouv.fr