The ordinary taxable period is equal to 12 months. Conformity with the calendar year is not requested. In particular cases, the duration of the taxable period can be different from 12 months (e.g. newly established companies are allowed to have taxable periods longer than 12 months; companies that are involved in extraordinary transactions [merger, de-mergers, etc.], as well as companies that are liquidated, may have taxable periods shorter than 12 months).
Regarding financial years that end on 31 December, CIT returns are, in theory, due by the end of May of the following year.
Accounting records to be provided in 'computerised format' in case of tax audit
Companies are required to keep their accounting records in computerised form and to provide them to the tax authorities in the same format. Such electronic files must be provided for FY 2015 and following years.
Payment of tax
Payment of tax is made during the financial year by way of four instalments equal to 1/4 of the standard taxable income of the preceding year (i.e. by 15 March, 15 June, 15 September, and 15 December for financial years that end on 31 December). Regarding financial years that end on 31 December, final CIT payment is due on 15 May of the following year.
Currently, for companies that have gross income in excess of EUR 250 million, the last down-payment is assessed on the basis of the estimated taxable income of the present year. This instalment plus the three previous ones should represent 95% or 98% of the CIT due on profits of the current year (95% for taxpayers with a revenue between EUR 250 million and EUR 1 billion and 98% for those with revenue in excess of EUR 1 billion). This leads to an anticipated payment of CIT.
Interest and penalties
Regarding CIT, VAT, registration duties, and business tax:
- late payment is subject to late interest computed at a rate of 0.4% per month late (4.80% per year) (the 2017 Act reduces this rate to 0.20% per month late [2.40% per year] for interest due from 1 January 2018) and to a 5% penalty, and
- late filing is subject to late interest computed at a rate of 0.4% per month late (4.80% per year) (the 2017 Act reduces this rate to 0.20% per month late [2.40% per year] for interest due from 1 January 2018) and to a 10% penalty.
Moreover, a penalty of 40% applies in case of bad faith and is increased to 80% in case of fraud.
Tax audit process
The French tax authorities are responsible for verifying that taxpayers’ obligations are correctly complied with and, if necessary, for making adjustments by issuing tax assessments.
Once an assessment is notified by the tax inspector and if the taxpayer disagrees with such an assessment, the taxpayer has 30 days to answer (with a possible 30 days extension upon request) and to provide comments to the French tax authorities.
Following an exchange of written correspondences between the tax inspector and the taxpayer (including hierarchical recourse), either party may submit any disagreement on a factual issue to the departmental or national tax commission. The decision of this commission is neither binding on the taxpayer nor on the French tax authorities.
In cases where the disagreement between the French tax authorities and the taxpayer still remains, the taxpayer can file a claim with the French civil courts or with the French administrative courts, depending on the type of tax that has been subject to assessment by the tax inspector.
France has reinforced its criminal rules applicable to tax matters. The French tax authorities are now required to transfer to the prosecutor any tax reassessment exceeding the amount of EUR 100,000, provided that said reassessment notably gives rise to the application of a 100% tax penalty, 80% tax penalty, or 40% bad faith penalty in cases where a 40% or 80% tax penalty or a tax fraud proceeding already occurred in the past six years.
Regularisation processes, in some circumstances, are facilitated with application of lower penalties.
Subject to some conditions, there is the possibility for companies to enter into enhanced relationships with the French Tax Administration in order to facilitate communication and ruling requests.
General anti-abuse rule (GAAR)
Exclusive tax purpose
To restore their true character, the French tax authorities are entitled to disregard, as not being enforceable against it, acts that constitute an abuse of law (i) either because these acts are fictitious or (ii) because, by seeking to benefit from a literal application of the laws or decisions against the objectives sought by their authors, these acts could not have been inspired by any other purpose than avoiding or mitigating the tax burden that the party concerned would normally have borne, given its actual situation or activities, had these acts not been executed or committed.
On top of the avoided taxes and the standard late payment interest, an 80% penalty for abuse of law is applicable. Specific procedural rules apply in case the French tax authorities apply the abuse of tax law procedure.
Principal tax purpose
A wider GAAR provision was also enacted. The French tax authorities may disregard an arrangement, or series of arrangements, put into place for the main purpose, or one of the main purposes, of obtaining a tax advantage that defeats the object or purpose of French tax law and is not genuine (which means that it does not rely on economic rationale).
The French tax authorities may apply penalties depending on the circumstances.
Statute of limitation
Regarding CIT, the general statute of limitation expires at the end of the third year following the one that has triggered the tax liability.
Under certain circumstances, the statute of limitation can be extended up to ten years (e.g. fraud, undisclosed/hidden activity); the statute of limitation can also be interrupted (e.g. notification of a notice of reassessment or international tax assistance).
Topics of focus for tax authorities
Transfer pricing, business reorganisation, financing arrangements, PEs due to home-based working model and VAT are standard elements reviewed during tax audit.
The ruling system
To secure the tax status of a situation, foreign companies and individuals can request a private ruling from the French tax authorities as to whether their activities constitute a PE or fixed base.
The French tax authorities have to provide an answer within three months after the receipt of the request. In the absence of response from the French tax authorities within this period of time, the foreign company or individual will be deemed not to have a PE in France.
France provides for other specific rulings (e.g. for R&D activities eligible to R&D tax credit).
APAs are also provided by the French tax authorities for transfer pricing purposes (see the Group taxation section for more information) as well as for eligibility of R&D expenses to the R&D tax credit.