Progressive reduction of the corporate income tax (CIT) rate
Pursuant to the provisions of the 2020 and 2021 Finance Bills, the French CIT rate continues its reduction trajectory.
|Turnover (EUR)||Profits (EUR)||CIT rate (%)|
|FY opened as of 1 January 2020||FY opened as of 1 January 2021||FY opened as of 1 January 2022|
|< 250 million||28||26.5||25|
|> 250 million||0 to 500,000*||28||27.5|
|In excess of 500,000||31|
* Situation of small corporations not addressed.
For FY opened as of January 1, 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 the corporations realising a turnover up to EUR 10 million (compared to EUR 7,63 million for FY opened before January 1, 2021).
Reduction of French production taxes
In order to improve competitiveness, the Finance Bill includes provisions aiming at reducing certain key taxes on production, with a focus on the territorial economic contribution (CET).
The 2021 Finance Bill also provides for a reduction of the rental value of industrial facilities (notably used to calculate the CFE) by half, pursuant to a defined accounting method. The reduction is applicable to the tax due as from 2021.
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 and 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 favorable 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, such as the acquisition of the real estate by the company or the early termination of the lease agreement, etc. 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 from January 1, 2021 until June 30, 2023 and subject to a financing agreement approved by the lessee prior to the sale as from September 28, 2020 until December 31, 2022.
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 private sector (i.e. elimination of the double tax base mechanism).
Furthermore, it removes the increase of EUR 2M 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.
ATAD 2 - 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 - 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.
French tax guidelines have not been published yet.
These new rules apply regardless the hybrid mismatches occur between EU or non-EU countries as far as one of the parties involved is subject to CIT in France.
Most of the new measures against hybrid mismatches entered into force for the FY opened as from 1 January 2020.
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 the 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 which occurred as from this date must be reported within 30 days as from 1 January 2021.
For arrangements 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 from January 1, 2021.
The early refund of carry-back receivables is extended to companies in a conciliation procedure. This measure applies to receivables raised as from 1 January 2021.
Permanent establishment - key decision
In a decision dated 11 December 2020, the French Administrative Supreme Court overturned a Paris Court of Appeal decision dated 1 March 1, 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 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 permanent establishment for CIT and VAT purposes.
Extension of the tax deferral regime to the mergers without exchanges of shares
The 2020 Finance Bill extended the benefit of the tax deferral regime to mergers or spin-off occurring without exchange of shares in case, notably, of mergers or spin-off between sister companies of which the share capital is entirely held by a unique parent company.
As from 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. We currently wait for the administrative guidelines detailing the operational implementation of the VAT group and the potential impact of such group regarding others taxes such as the tax on salaries.
In furtherance of Article 153 of the Finance Law for 2020 which aim to generalise e-invoicing between taxable persons with a gradual entry into force between 1 January 2023 and 1 January 2025, 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 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 electronic invoices, either that they are complementary to those resulting from it (e.g. data related to payment of invoices), or they relate to transactions which are not electronically invoiced or are not subject to the invoicing obligation for the purposes of value added tax (e.g. B2C flow or non-domestic flows): e-reporting obligation.
The EU and UK Trade and Cooperation agreement (thereafter, "TCA") concluded in December has a significant impact on supply chains. Indeed, for goods traded between the EU and the UK 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 EU or the UK. 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 tarif 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. Therefore, this means that companies selling in both the EU and the UK must comply with two different sets of regulatory requirements.
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 (le projet de loi portant lutte contre le dérèglement climatique et renforcement de la résilience face à ses effets) 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 going from 2022 to 2030.