Guide to the valuation of companies and corporate securities
The Directorate-General for Public Finance (DGFiP) has just published a new edition of the Guide to the valuation of companies and corporate securities, a document much awaited by the professionals of the number and the law. The guide is intended for both business and valuation practitioners and is intended to serve as an administrative reference for determining the market value of companies and their securities.
This publication takes place in a context where transmission, donation, business transfer, restructuring or tax controls require ever more rigorous justification of the valuation methods used.
Why is this guide important?
A company's assessment is never a single mathematical formula. Each company has its own characteristics: business sector, profitability, intangible assets, development prospects, dependence on the manager or quality of its governance.
The new Business Assessment Guide recalls a fundamental principle of tax case law: the value of sales results from a combination of several valuation methods, weighted according to the specificities of each company. The administration thus confirms that no method can be used automatically or exclusively.
The main evaluation methods selected by the DGFiP
The guide details the main approaches traditionally used by the tax administration:
- the heritage approach (net assets revalued);
- cost-effective methods;
- multiples of comparable companies;
- references from comparable transactions;
- the combined methods for obtaining a representative market value.
The administration also insists on the need for numerous reprocessings in order to achieve an economically consistent value: exceptional items, assets outside operations, surplus cash, debt, non-recurring items or statutory clauses affecting securities.
A particularly useful document for company transmissions
This guide is particularly important in all operations where valuation is required, including:
- transfer of company;
- donation of securities;
- succession;
- Doutreil Pact;
- group reorganization;
- provision of securities;
- tax control of the declared value.
In practice, it is the benchmark that DGFiP services are likely to use when examining the consistency of a valuation declared by a taxpayer.
It is therefore an essential document for anticipating any discussions with the tax administration.
A practical scope far beyond tax controls
Although this guide is published by the tax administration, its interest is far beyond the scope of controls alone.
Leaders can refer to it for:
- preparing a business sale;
- host an investor;
- organize a family transmission;
- determine the value of shares between members;
- negotiate an assignment price based on recognized methods.
Accountants, auditors, lawyers and M & A consultants also have a common methodological framework to facilitate dialogue with the administration.
Special vigilance on the justification of assumptions
One of the major lessons of the new Business Assessment Guide is the importance attached to the motivation of the assumptions.
The administration recalls that the valuation is not based solely on financial calculations. Economic assumptions, business prospects, the competitive environment, the quality of intangible assets or the market situation must be documented to justify the value chosen.
In other words, valuation is sound only if it is legally and economically justified.
Why be accompanied by a tax lawyer?
In most important heritage operations, the issue lies not only in determining a value, but also in its ability to withstand fiscal control several years after the transaction.
A tax lawyer intervenes to:
- analyse the most appropriate assessment method;
- secure supporting documentation;
- anticipate the risks of challenge by the administration;
- accompanying exchanges with tax services in case of control or litigation.
This security is particularly recommended in donations, family transfers, transfers of SMEs or group reorganization operations.
See the Business Assessment Guide
With this new publication, DGFiP enhances the transparency of its doctrine and provides companies with a valuable repository to assess the value of their securities.
If this guide does not create new rules of law, it helps to better understand the expectations of the administration and the criteria that can be used in a check.
For managers and their advice, it is now a reference document to be consulted before any transaction involving corporate valuation or corporate securities.
The guide is available at the following link: consult the Business Assessment Guide.
