France

Progressive reduction of the corporate income tax (CIT) rate

Pursuant to the provisions of the 2020 and 2021 Finance Bills, the French CIT rate has decreased down to 28% in 2020 and 26.5% (or 27.5% in certain cases - see table below) in 2021. As from January 2022, the French CIT rate is 25%.

* euros

** Situation of small corporations not addressed.

For financial years (FYs) opened as of 1 January 2021, the reduced CIT rate of 15% that applies for small corporations on their first EUR 38,120 of taxable profits (according to the French Tax Law definition) is extended to corporations realizing a turnover up to EUR 10 million (compared to EUR 7.63 million for financial years opened before 1 January 2021). As from 1 January 2023, the reduced CIT rate of 15% applies for small corporations on their first EUR 42,500 of taxable profits.

Reduction of French production taxes 

In order to improve competitiveness, the territorial economic contribution (CET) started to decrease down over previous years.

The 2021 Finance Bill also provided for a reduction of the rental value of industrial facilities (notably used to calculate the land contribution [CFE]) by half, pursuant to a defined accounting method. The reduction is applicable to the tax due as of 2021.

The Finance Bill for 2023 provides for the repeal of the business value-added contribution (so called “CVAE”, one of the components of the CET) over a two-year period. In practice, the CVAE rate will be halved in 2023 before the tax disappears in 2024. 

In parallel with the abolition of the CVAE, the rate of the cap on territorial economic contribution (CET) according to value added, currently set at 2%, will be lowered to 1.625% in 2023 and then to 1.25% from 2024.

New tax regime for reinsurance captive companies

The Finance Bill for 2023 creates a specific tax regime for certain captive reinsurance, defined as an undertaking owned either by a financial undertaking (with certain exceptions) or by a non-financial undertaking, the object of which is the provision of reinsurance cover relating exclusively to the risks of the undertaking or undertakings to which it belongs, or to the risks of one or more other undertakings in the group of which it forms part. The purpose of this provision is to facilitate the creation of captive reinsurance companies in France by offering them a favorable tax regime in order to promote a better insurance offer, by allowing them to negotiate with third-party insurers ("fronters") insurance coverage more adapted to their needs.

This new tax regime provides that captive reinsurance undertakings held by an undertaking other than a financial undertaking and whose object is the provision of reinsurance cover relating exclusively to the risks of undertakings other than financial undertakings may constitute, tax-free, a provision to cover expenses relating to accepted reinsurance operations whose insurance risks fall within the categories of damage to professional and agricultural property, natural disasters, general civil liability, pecuniary losses and pecuniary damage and losses resulting from damage to information and communication systems and transport. 

These provisions come into force on January 1, 2023.

Tax deferral applicable to free asset revaluation

In order to improve companies’ equity and financing ability, the 2021 Finance Bill temporarily allows companies to freely elect to revalue all their tangible and financial assets based on their fair market value under French GAAP. 

The 2021 Finance Bill provides for a 'neutralisation' of the tax impact of such an asset revaluation by allowing companies to benefit from certain tax deferral rules based on the type of asset. 

This temporary regime is subject to a formal election, specific documentation requirements, and commitments from each company choosing to benefit from this favourable tax treatment.

This new provision applies to the first revaluation process realised in a tax year ending on or after 31 December 2020 and until 31 December 2022.

Favourable tax treatment applicable to sale and leaseback transactions

In order to improve companies’ financing and treasury positions in the current COVID-19 environment, the 2021 Finance Bill introduces a temporary favourable tax regime applicable to capital gains resulting from sale and leaseback transactions.

Instead of an immediate taxation of the capital gain, a company disposing of its real estate in a sale and leaseback transaction with a leasing company may now elect to equally spread the entire gain over the duration of the lease agreement within a 15-year limit.

The regime is subject to a formal election, specific eligibility conditions, and filing requirements. Certain events (e.g. the acquisition of the real estate by the company or the early termination of the lease agreement) would lead to ending the benefit of the regime and trigger the immediate taxation of the remaining gain.

The new regime applies to the sale of qualifying real estate to leasing companies occurring as of 1 January 2021 until 30 June 2023 and subject to a financing agreement approved by the lessee prior to the sale as of 28 September 2020 until 31 December 2022.

Research and development (R&D) tax credit adjustments

The 2021 Finance Bill modifies the research tax credit and innovation tax credit as it aligns the regime of the expenses related to operations entrusted to public entities with the one related to the private sector (i.e. elimination of the double tax base mechanism).

Furthermore, it removes the increase of EUR 2 million in the annual ceiling on subcontracting expenditure in the event of subcontracting to public entities.

These measures apply to research expenditure incurred as of 1 January 2022.

European Union (EU) Anti-Tax Avoidance Directive (ATAD) II - Hybrid mismatches measures

The Finance Bill for 2020 transposes ATAD II into French Law under new Articles 205 B, C, and D of the French Tax Code (FTC), essentially focusing on double deductions, imported mismatches, and deduction without inclusion situations that would apply not only between EU member states, but also in situations involving third countries.

These new rules apply regardless of whether the hybrid mismatches occur between EU or non-EU countries, as long as one of the parties involved is subject to CIT in France.

The new measures against hybrid mismatches entered into force for the financial year opened as of 1 January 2020. However, the reverse hybrid mismatch rule entered into force as from fiscal years open since 1 January 2022. 

DAC6 - New reporting obligations 

Pursuant to the EU Council Directive 2018/822/EU regarding mandatory exchange of information in the field of taxation with respect to reportable cross-border arrangements, intermediaries and taxpayers are subject to new reporting obligations involving certain cross-border tax planning arrangements.

The DAC6 reporting obligations to local tax authorities focus on cross-border tax planning arrangements that meet characteristics or hallmarks intended to highlight risk of tax avoidance and enable more effective audits.

France transposed DAC6 on 21 October 2019, and its provisions took effect on 1 July 2020 as arrangements that occurred as of this date must be reported within 30 days as of 1 January 2021.

For arrangements that occurred between 25 June 2018 and 30 June 2020, the reporting obligation deadline is on 28 February 2021.

Supporting measures for companies in a conciliation procedure

Commercial debt waivers granted to companies within the frame of a conciliation procedure (Art. L. 611-8 of the French Commercial Code) are deductible for tax purposes regardless its justification. This measure applies for debt waivers granted as of 1 January 2021.

The early refund of carryback receivables is extended to companies in a conciliation procedure. This measure applies to receivables raised as of 1 January 2021.

Permanent establishment (PE) - Key decision

In a decision dated 11 December 2020, the French Administrative Supreme Court overturned a Paris Court of Appeal decision dated 1 March 2018 (which had previously concluded in the absence of a PE under the France-Ireland Tax Treaty) and ruled against the Irish subsidiary ('Irish Co.') of a United States (US) group.

The French Administrative Supreme Court ruled that French Co. should be regarded as a dependent agent in France of Irish Co., even if it did not formally conclude contracts in the name of Irish Co., since it decided on transactions that Irish Co. merely and routinely approved and, as such, became legally binding to Irish Co. 

Consequently, the Court considered that the Irish Co. constituted a PE for CIT and value-added tax (VAT) purposes.

Possibility to offset convention tax credits on French taxation (upon capital gains and dividends) - Key decisions

The French administrative jurisdictions have ruled that the French 5% taxation of dividends at the level of the beneficiary under the participation exemption regime (i.e., EU parent-subsidiary Directive) and the French 12% taxation of long-term capital gains (i.e., shares representing securities that qualify as “titres de participations”) constitute an effective taxation against which foreign tax credits may be offset (Conseil d'État, 8ème - 3ème chambres réunies, 15 November 2021, n°454105, L’Air Liquide, Cour administrative d'appel de Lyon, 27 January 2022 n°20LY00698 Sté A. Raymond & Cie and Conseil d'État, 8e-3e ch. 5 July 2022 n°463021, Sté Axa). 

Claims can be addressed to the French tax authorities in order to benefit from the foreign tax credits over the years that are not statute barred (i.e., 2020, 2021 and 2022 for FY closed on 31 December and if the claim is sent in 2023).

Application of the double tax treaty between France and the State of the beneficial owner (as not being the direct beneficiary) - Key decision

A recent decision from the French Administrative Supreme Court (Conseil d'État, 9e et 10e ch., 20 mai 2022, n°444451, Sté Planet) has recognized, for the first time, the applicability of a reduced withholding tax rate provided by the double tax treaty between France and the State of the beneficial owner (i.e., as being the indirect beneficiary of the income paid), as opposed to the withholding rate provided by the tax treaty between France and the State of the direct beneficiary of the income (in the case at hand, royalties).

Such possibility is subject to several and specific conditions (notably the collection of a precise and complete documentation) which are to be validated on a case-by-case basis.

Extension of the tax deferral regime to mergers without exchanges of shares

The 2020 Finance Bill extended the benefit of the tax deferral regime to mergers or spin-offs occurring without exchange of shares in case, notably, of mergers or spin-offs between sister companies of which the share capital is entirely held by a unique parent company.

VAT group

As of 1 January 2023, Article 11 of the Directive 2006/112/EC of 28 November 2006, whereby each member state may regard as a single taxable person any persons established in the territory of this member state who are legally independent but are closely connected with each other for financial, economic, or organisational purposes, will be implemented in France under new Article 256C of the FTC. This new regime would be optional and would reinforce the neutrality of VAT for groups, particularly in sectors carrying out tax-exempt transactions. Taxable persons who have elected to form a single taxable person would have to appoint one of them as the head of the group in order to comply with all the obligations related to the tax and make the tax payments, in respect of which all members would remain jointly and severally liable. The group would be set up for a minimum period of three years. 

E-invoicing 

​In furtherance of Article 153 of the Finance Law for 2020, which aims to generalise e-invoicing between taxable persons with gradual entry as of 1 July 2024, Article 195 of the Finance Law for 2021 allows the government to take, within the nine-month period following the publication of the law, all the necessary measures to:

• generalise the use of e-invoicing and modify the terms and conditions of the e-invoicing model (i.e. e-invoicing obligation), and
• implement an additional obligation of digital transmission to the authorities of information relating to transactions carried out by persons subject to VAT who do not result from e-invoices, either that they are complementary to those resulting from it (e.g. data related to payment of invoices) or they relate to transactions that are not e-invoiced or are not subject to the invoicing obligation for the purposes of VAT (e.g. B2C flow or non-domestic flows) (i.e. e-reporting obligation).

Customs

The EU and United Kingdom (UK) Trade and Cooperation Agreement (TCA) concluded in December 2020 has a significant impact on supply chains. Indeed, for goods traded between the European Union and the United Kingdom to benefit from being duty free, they must meet with the requirements on 'rules of origin', which certify that the goods do really come from the European Union or the United Kingdom. This entails that companies must carefully assess their supply chains in order to determine which parts of their final products can benefit from an EU or UK preferential origin. As a consequence, to justify any tariff exemption or reduction, companies must provide customs authorities with a proof of origin based on the importer's knowledge of the origin of the goods or a certificate of origin issued by the exporter.

Moreover, the TCA does not provide for mutual recognition of product conformity assessment. This means that companies selling in both the European Union and the United Kingdom must comply with two different sets of regulatory requirements.

Excise rights

​As of 1 January 2021, a part of the excise rights related to the general tax on polluting activities (taxe générale sur les activités polluantes or TGAP) will pass under the aegis of the Public Finances Directorate General (la direction des finances publiques or DGFIP). As a result, the TGAP tax returns will now be filed separately on the VAT returns. Moreover, the 'oil and lubricant' component of the TGAP is, as of 1 January 2021, no longer subject to taxation.

A project of a bill to combat climate change and strengthen resilience to its effects is currently in discussion. If it succeeds, it will end the tax exemption on the TICPE (domestic tax on the consumption of energy products) for road diesel fuel. This elimination will be phased out over a period from 2022 to 2030.

New temporary solidarity contribution (TSC) for companies in the petroleum, natural gas, coal and refining sectors.

This new contribution is exceptional and temporary and applies for the first financial year beginning on or after 1 January 2022.

The persons or permanent establishments carrying on business in France or whose profits are taxed in France by an international double taxation convention and whose turnover for the financial year concerned derives for at least 75% from economic activities in the crude oil sectors, natural gas, coal and refining (as defined in point 17 of Article 2 of the Council Regulation (EU) 2022/1854 of 6 October 2022), shall be liable to pay the TSC. Although it only marginally concerns France, through the sole activity of refining.

The TSC rate is set at 33%