France

Depreciation

The depreciation of fixed assets has to be carried out component by component according to their own actual useful time.

Declining-balance depreciation is authorised for certain categories of new fixed assets whose depreciation period exceeds three years. Used assets acquired in connection with a merger or similar transaction are eligible for declining-balance depreciation.

Temporary investment incentive measures on very specific types of assets may apply.

Goodwill

According to French accounting standards, goodwill is deemed to have an unlimited period of use. It is therefore, in principle, not amortised from an accounting standpoint.

However:

• this rule is only a presumption, which can be rebutted if a limited period of use can be established; in such a case, goodwill can be amortised over its period of use or, if this period cannot be reliably determined, over ten years, and
• small businesses can amortise their acquired goodwill over ten years without having to justify a limited period of use.

For tax purposes amortisation of goodwill is, in principle, not deductible. The French tax law allows, on a temporary basis, the tax deduction of goodwill amortisation booked in respect of businesses acquired between 1 January 2022 and 31 December 2025.

Start-up expenses

No specific rules apply regarding deduction of start-up expenses, except the qualified expenses incurred in establishing the company (so called ‘frais d’établissement’), which can be either deducted or depreciated over five years.

Research and development (R&D) and software expenses

Concerning R&D and software expenses, a business may elect to immediately deduct costs incurred in R&D of software or to amortise their cost on a straight-line basis over a maximum period of five years.

The cost of acquiring software may be written off on a straight-line basis over 12 months.

In general, patents acquired / created can be amortised over the patent protection period or the effective usage duration.

Financial expenses

In France, the deductibility of financial expenses derives from ATAD I since 2019. The main limitation can be sum up as follows: 

Limitation of financial expenses deduction

The net financial expenses incurred in a given year are deductible up to the higher of the two following thresholds (deduction capacity):

• EUR 3 million;
• 30% of the adjusted taxable income of the taxpayer (i.e. EBITDA).

Financial expenses and income used to determine the net amount referred to above include, inter alia, amounts that are accrued in remuneration for monies made available to or lent by the taxpayer. They include, but are not limited to:

• Payments under participating loans;
• Imputed interest on financial instruments (e.g. convertible bonds);
• Notional interest amounts under derivative instruments or hedging arrangements;
• Foreign-exchange gains and losses on interests from loans;
• Guarantee fees for financing arrangements, arrangement fees, and similar costs related to the borrowing of funds.

The adjusted taxable income corresponds to the taxable income before the offset of tax losses and corrected from net financial expenses and, to some extent, deductible depreciation, impairment, and capital gains and losses. 

In addition to this deduction capacity, 75% of the net financial expenses exceeding the threshold is tax deductible, provided that the equity-to-asset ratio of the company is at least equal to or is not lower by more than two percentage points, the equity-to-asset ratio of the consolidated group to which it belongs.

Non-deductible financial expenses of a given year are carried forward indefinitely. Unused interest deduction capacity of a given financial year can be carried forward for up to five years.

Thin capitalisation

Please see comments regarding thin capitalisation in the Group taxation section.

Hybrid mismatches

French anti-hybrid rules prohibit the deduction of any payment which is not included in the taxable income of the beneficiary as a result of a mismatch between the laws of France and the laws of the country of the beneficiary. Besides, they prohibit situations of double deduction (i.e. where a payment, expense or loss deducted in France is also deducted in another jurisdiction). Finally, they deny the deduction of any payment which directly or indirectly finances a hybrid mismatch between associated enterprises. While French anti-hybrid rules implement the ATAD 2 directive, they also include deviations from this directive. Upon request from the French tax authorities, taxpayers must evidence that their transactions do not give rise to hybrid mismatches.

Bad debt

Bad debts that are definitively non-recoverable are treated, from a tax point of view, as deductible charges.

Under certain conditions, a tax-deductible reserve can be established for debts whose collection is uncertain.

Charitable donations

As a general principle, charitable donations are not tax deductible for CIT purposes. but may entitle the company to a tax credit in certain cases. See the Tax credits and incentives section for more information.

Fines and penalties

As a general principle, fines and penalties of all kinds are not tax deductible for CIT purposes.

Taxes

Most taxes, paid either in France or in a foreign country, are deductible. The major exceptions are French CIT, and Pillar 2 top-up tax, which are not tax deductible.

CIT losses

Carry forward of tax losses

The right to carry forward losses is unlimited in time. Losses incurred in respect of previous years may be offset against income for a subsequent year, up to a limit of EUR 1 million plus 50% of the portion of income exceeding this threshold.

The right to unlimited carry-forward of losses is lost in the event of circumstances leading to the cessation of the business, such as a change in actual activity or the disappearance of the means of production. The FTC defines the criteria for determining a change in business activity or the disappearance of the means of production. Under certain circumstances, a ruling can be obtained from the French tax authorities to keep all or part of the net operating losses.

Carry back of tax losses

As an option it is possible to offset the tax losses for a given year against the profit for the previous year (up to the undistributed portion of this profit). The deficit can only be carried back to the profit for the previous financial year, up to the lower of the said profit or EUR 1 million.

Consolidated tax group losses

See section Group taxation section for more information. 

Payments to foreign-related parties

Unless otherwise provided by the FTC, payments to foreign affiliates are deductible from the CIT basis as long as they meet the arm’s-length test. If they do not, article 57 of the FTC provides that income directly or indirectly transferred to the foreign-related parties, through either the increase or the reduction of the purchase or sales price of goods and services, or through any other means, must be added back to taxable income. For the purpose of this provision, foreign-related parties are defined as a parent company, subsidiaries, or sister companies.

Where the payments are made to companies located in a country with a privileged tax regime, the French taxpayer must prove, in addition, that the transaction is real and that the amount due is not exaggerated. See the Group taxation section for more information on countries with a privileged tax regime. See also the Withholding tax section for more information on Payment to NCST.

Royalties

The FTC restricts the conditions for deducting licensing royalties where the licensor and the licensee are related parties. In some specific circumstances the deduction will only be partial when the beneficiary is taxed at a rate below 25%.