France

Tax consolidation regime

French corporations and their 95% owned domestic subsidiaries may elect for a tax consolidation regime thus allowing the offset of the tax losses of one group corporation against the profits of a related corporation. CIT is then levied on the aggregate tax group profit (after certain adjustments [e.g.neutralisation/deneutralisation of capital gain or loss on intra-group sales of assets, provisions on intra-groups receivables]). It is due by the tax group parent company. When shares in a company that is due to be part of the tax consolidated group are acquired by a group company from individuals or legal entities that control this group, either directly or indirectly, a portion of the group's overall financial expense incurred by the members of the group is added back to the group's taxable income on a straight-line basis over a nine-year period (so called ‘amendement Charasse mechanism’).

Regarding the perimeter of the French tax group, it is to be noted that, subject to specific conditions:

• a French subsidiary can be included in a tax consolidated group even if its shareholder is not located in France. In this case, at least 95% of the share capital of the foreign company must be held, directly or indirectly, by the French company that is head of the tax consolidated group, the foreign company must be subject to CIT, be located in the EU or in a State of the EEA whose tax treaty with France includes a mutual administrative assistance clause to fight tax fraud and tax evasion, and hold 95% of the lower-tier subsidiary’s shares.
• a French horizontal group can also be set up between French sister or cousin companies that are at least 95% directly or indirectly owned by the same parent company located in the EU or EEA (so-called ‘Non-resident Parent Entity’). The intermediary companies in between the Non-resident Parent Entity and French Tax Members (so-called ‘Foreign companies’) must also be located in EU/EEA. In this case, one of the French sister or cousin companies elects for being the sole liable entity to CIT for the whole tax group (so-called ‘French Parent Company’).

Allocation of the tax charge within a tax consolidated group

Group companies are, in principle, free to enter into a tax consolidation agreement stating the conditions for the allocation of the group tax charge or, where applicable, the tax savings arising from the group arrangement, as long as this allocation neither undermine the corporate benefit of each group member nor the minority shareholders rights. Otherwise, this will result in an abnormal act of management.

Dividends

For dividends subject to the participation exemption regime, see the dedicated section below.

Other dividends received from a French subsidiary part of the tax group or from a UE subsidiary that fulfil the conditions to be part of the tax group but that are not subject to the participation exemption regime, are neutralised up to 99% of their amount for calculating the tax consolidated group result (this applies only on dividends received by a group company from a group member company for more than one fiscal year).

Transactions at cost among consolidated entities

Goods and services sold at a lower price than the arm's-length one but higher than their cost of goods or cost of service do not qualify as indirect subsidies and never create a tax event within tax consolidation.

Participation-exemption regime

Dividends received by a shareholder qualifying for the parent subsidiary regime may be deducted from its total net income, except for a 5% lump sum.

To qualify for this regime, the shares held must represent at least 5% of the capital of the issuing company and be kept for at least 2 years (or take the commitment to hold the shares for 2 years being noted that some interim operations do not lead to a break of the two-year holding period). Certain shares of listed real estate companies are not eligible to the French parent-subsidiary regime.

The subsidiary doesn’t have to be established in France, in the UE or EEE for the French company to benefit from this regime.

Dividends received by a parent company member of a tax consolidation group from another tax group company can benefit from a reduced 1% lump sum rate as of the second financial year as part of the tax group.

In addition, dividends received from subsidiaries of a French parent company located in the EU which, if established in France, would meet the conditions to elect to be part of a French tax group (notably to be subject to an equivalent of CIT, to have the same FY dates) can benefit from the reduced 1% lump sum rate, whether or not the company receiving the dividends has actually opted for tax consolidation (either as head of tax group or as member of a tax group) (after a minimum period of one fiscal year).

Please note that dividends distribution between French companies that are not both members of a tax consolidated group cannot benefit from this reduced 1% rate. In case the dividends are subject to a withholding tax abroad a tax credit may be available in some specific circumstances.

Transfer pricing

Transfer pricing documentation

Large corporations located in France (i.e. companies with annual turnover or amount of gross assets in excess of EUR 150 million, or which holds directly or indirectly, at the end of the financial year, more than half of the capital or voting rights of a legal entity meeting the above threshold, or have more than half of their capital or voting rights held directly or indirectly, at the end of the financial year, by a legal entity meeting the above threshold) are required to provide documentation containing general information regarding the relevant group of companies, including main activities, operational and legal structures of the related companies, functions performed and risks borne, main intangible assets, and group transfer pricing policy, amongst others.

The transfer pricing documentation should be available upon request at the beginning of a tax audit. Taxpayers have 30 days as of a formal notice from the French Tax Authorities (FTA) to provide a complete transfer pricing documentation. Non-compliance with this obligation could lead to a penalty that is the greater of 5% of the taxable profits deemed to have been transferred abroad for each fiscal year or 0.5% of the amount that represents non-documented transactions (with a minimum of EUR 50,000 per tax year i.e. EUR 150,000 for 3 years).

Light French transfer pricing annual reporting obligation

French entities with annual turnover or amount of gross assets in excess of EUR 50 million, or which holds directly or indirectly, at the end of the financial year, more than half of the capital or voting rights of a legal entity meeting the above threshold, or have more than half of their capital or voting rights held directly or indirectly, at the end of the financial year, by a legal entity meeting the above threshold are also subject to a light but annual French transfer pricing documentation requirements. French companies subject to these transfer pricing obligations must file electronically Form 2257 no later than six months after the deadline to file the annual CIT return with the tax authorities. Form 2257 discloses general information related to the consolidated group (i.e. activities performed, group transfer pricing policy, country of location of intangibles). The form also includes specific information on the French entity (i.e. aggregated amounts of inter-company transactions exceeding EUR 100,000, main transfer pricing method used for each kind of transaction).

Advanced pricing agreements (APAs)

APAs are available for taxpayers only on the basis of international agreements entered into in accordance with Article 25 of the OECD Model Tax Convention. Currently, taxpayers are also allowed to enter into APAs with the French tax authorities on a unilateral basis. In practice, taxpayers are entitled to submit their transfer pricing policy to the French tax authorities. Agreement of the tax authorities to the APA precludes a later challenge as long as facts and circumstances described in the APA and actual ones are identical. The possibility of a retroactive application of the APA (roll-back), under certain conditions and for a maximum period of 3 years, has been introduced by an administrative instruction in 2025.

Hard-to-value intangible

French tax authorities may adjust the value of a transferred hard-to-value intangible asset or right based on results subsequent to the financial year in which the transaction took place. 

Country-by-country (CbC) reporting

French companies which hold are required to prepare country-by-country reporting (CbCR) if they:

• prepare consolidated financial statements;
• hold or control, directly or indirectly, one or several legal entities established outside of France, or have branches abroad;
• generate annual consolidated turnover of at least EUR 750 million and;
• are not held by one or several legal entities situated in France and subject to CbCR in this regard, or by an entity established outside France and subject to a similar CbCR requirement pursuant to foreign legislation.

The declaration includes a country-by-country breakdown of group profits, economic, accounting and tax aggregates, as well as information on the location and activity of the group entities and branches.

Since France is a signatory to the OECD’s Automatic Exchange of Information initiative, the FTA will have access to the CbCRs of countries that have signed this agreement, and vice versa. The CbCR will be exchanged by France with other countries under automatic, reciprocal exchange agreements. Companies who do not comply may be subject to a penalty of up to EUR 100,000.

In 2023, France incorporated the Public CbCR Directive (Directive (EU) 2021/2101 amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches) into the French Commercial Code to enhance transparency on the activities, results, and taxation of multinational companies in the EU. The obligation to publish a Public CbCR applies to fiscal years beginning on or after 22 June 2024, with the return required to be published within 12 months of the financial years end.

Multinational enterprises (MNEs) based in France and non-EU based MNEs operating in France through branches or subsidiaries, with total consolidated revenue exceeding EUR 750 million in each of the last two consecutive financial years, must publicly disclose certain income tax information specified by the French Commercial Code. Companies may choose to present this information in their public CbCR in the same format as their tax CbCR or in accordance with the French Commercial Code provisions.

The public CbCR must be published in the commercial court clerk's office and made available to the public. Companies can defer the publication of sensitive information, provided they state the reasons for non-publication, and publish the deferred information in a subsequent public CbCR within five years. While the French Commercial Code does not specify sanctions for non-compliance, any person can request the court president to compel the publication of the report.

Although tax and public CbCR share similarities, their definitions and interpretations differ. Companies must anticipate this reporting obligation and define how they will present the information in their public CbCR.

Interest deductibility / Thin capitalisation

Interest accrued by a French corporation in relation with borrowings from its direct shareholders may be deducted if the following two conditions are met: 

• The share capital of the borrower is fully paid-up.
• The interest rate does not exceed the average interest rate on loans with a minimum term of more than two years granted by financial institutions.

Related-party interest charges are tax-deductible only if they are at arm’s-length. Under the arm’s-length test, the deductible interest rate is limited to the higher of: 

• The average annual interest rate on loans, with a minimum term of more than two years granted by financial institutions.
• The interest rate at which the company could have borrowed from any unrelated financial institution, such as a bank, in similar circumstances (i.e. the market rate).

The portion of interest that exceeds the higher of the above two thresholds is not tax-deductible and must be added back to taxable income for the relevant financial year.

Since 2019, in line with the implementation of the ATAD 1 rules in France, additional limits on tax deduction on net financial charges apply. 

For a tax-consolidated group, this limitation rule applies at the level of this group, which generates the need to prepare a specific consolidation at the level of the tax-consolidated group specifically only for the purpose of these rules For taxpayers considered to be thinly capitalised, the portion of deductible financial expenses is determined based on the following rules:

• External debt: a prorated portion of the 30% of tax EBITDA test applies to a prorated portion of interest expenses. The portion corresponding to external debt is determined as being the average amount of financial debts towards third parties (including debts towards related parties up to 1.5 times the equity)/total amounts average amount of financial debts of the taxpayer. 
• Related-party debt: Interest on related-party debt will be subject to stricter rules, with a prorated portion of the 10% of tax EBITDA limitation applying to a prorated portion of interest charges derived from related-party debt. The portion corresponding to related-party debt is determined as being the average amount of financial debts towards related-parties exceeding 1.5 times the equity total amounts average amount of financial debts of the taxpayer. 

Additionally, limitation to the carry-forward rules of deduction capacity and financial expenses are applicable when the taxpayer is thinly capitalised.

A taxpayer is considered to be thinly capitalised when:

• The average related-party debt-to-equity ratio exceeds 1.5;
• The taxpayer does not validate the safeguard clause where its overall debt-to-equity is higher than the overall debt-to-equity ratio of the consolidated group in which the taxpayer is included.

For taxpayers not considered to be thinly capitalised (i.e. where the average related-party debt-to-equity ratio is below 1.5 or if the taxpayer can validate the safeguard clause), the net financial expenses incurred in a given year are deductible within the limit of the higher of the two following thresholds: 

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

Special thin capitalisation rules for tax consolidated groups

A member of the tax consolidation may benefit under restrictive conditions of an extra interest charge deduction when the ratio of the consolidated group is higher than its own one.

See the Deductions section for more information, and specially comments regarding standard regime in the limitation of financial expenses deduction.

Controlled foreign companies (CFCs)

• When a company established and subject to CIT in France, holds directly or indirectly more than 50% of a foreign entity, subject in the state or territory where it is established to a privileged tax regime, the profits of this entity are subject to French CIT (FTC, art. 209 B). Under specific circumstances the 50% holding threshold mentioned may be reduced to 5%.
• A privileged tax regime must be understood as one in which a foreign entity is not subject to tax or is subject to taxes on profits or income that are at least 40% lower than the amount for which it would have been liable in France, if it had been established there.
• Under the CFC rules, the profits of foreign entities with legal personality (e.g. partnerships, capital companies, foundations) are deemed as distributed income taxable in the hands of the French entity.
• Safe harbour provisions exist and vary depending on the location of the subsidiary (within or outside the EU).