France

Inventory valuation

Inventories must be valued at the lower of cost or market value. Cost must be determined in accordance with the first in first out (FIFO) or the average-cost method. The last in first out (LIFO) method is prohibited in France.

Capital gains

As a general principle, capital gains are taxable as ordinary income and subject to CIT at the standard rate, regardless of the duration of ownership of the assets sold.

Under restrictive conditions, a reduced rate of 10% is applied to capital gains on the disposal of patents, industrial processes connected to patents, and software. See the Taxes on corporate income section for more information.

Also, subject to several conditions, gains on the sale of shares in subsidiaries held for at least two years qualify as long term capital gains and benefit from significant tax relief (88% of such capital gains are excluded from CIT, with the remaining 12% being taxed at the standard rate on the gross amount of capital gain in case a net capital gain amount is realised).

Long-term capital losses cannot be offset against future long-term capital gains.

Specific rules may apply on capital gains and losses on the sale of shares between related companies.

Capital gains for non-residents

As a general rule, non-resident companies are not taxable in France with respect to capital gains derived from the disposal of French assets unless these are part of a PE.

Subject to the tax treaties, foreign entities are subject to taxation in France on:

• the sums paid as remuneration for services of any kind provided or used in France and industrial property income;
• the share of profits corresponding to their rights in partnerships of which they are members;
• capital gains derived from the disposal of real estate assets located in France or share in French real estate entities;
• capital gains derived from the disposal of shares held in a French company subject to CIT in the case where the non-resident seller has owned, at any point in time during the five years preceding the sale, at least 25% of the rights in the profits of the French company, unless provided otherwise by the DTT., if any. Foreign companies or organizations may obtain a refund of the portion of the levy that exceeds the corporate income tax for which they would have been liable if their registered office had been located in France (this notably covers the case where the long-term regime would be applicable). Specific rules apply to non-cooperative states and territories (NCST).

Dividend income

Dividends generally are taxable as ordinary income and subject to CIT at the standard rate.

For information on the taxation of inter-company dividends, see Participation-exemption regime in the Group taxation section.

Interest income

Interest income generally is taxable as ordinary income and subject to CIT at the standard rate.

Royalty income

Royalties are, in principle, subject to CIT at the standard rate (plus additional social contribution if relevant).

However, a reduced CIT rate of 10% applies under restrictive conditions to royalties derived from licensing or sub-licensing of patents or copyrighted software. See the Taxes on corporate income section for more information.

Foreign income

Resident corporations are not taxed on foreign-source income derived from activities carried out abroad through foreign branches and foreign PEs. Undistributed income of foreign subsidiaries is not taxable. Some exceptions to the territoriality principle apply, for instance Article 209 B of the FTC that provides for Controlled Foreign Company (CFC) rules. See the Group taxation section for more information.