This country-specific Q&A provides an overview to tax laws and regulations that may occur in France.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-3rd-edition/
How often is tax law amended and what are the processes for such amendments?
In theory, tax law is amended twice a year by two finance laws adopted at the end of each year: (i) the Finance Act which settles the budget of the following year and (ii) an Amendment to the Finance Act correcting the budget of the finishing year.
Tax law may also be, and in practice often is, amended by specific tax provisions contained in more general laws. For example, the Social Security Financing Act often includes tax provisions, such as the rates of French social contributions (CSG, CRDS). More recently, the law n°2018-727 for a State Serving a trusted company establishes a right to make mistakes in order to improve relations between the administration and the citizen including new possibilities of regularization and strengthen the taxpayer's guarantees during a tax procedure. Finally, an additional amendment to the Finance Act may also be adopted during the year (often in summer).
Bills are not subject to systematic prior consultation with industry stakeholders. In France, companies or individuals do not have an official say in the law-making process and are not consulted either by the French government or the legislator. However, there are ongoing discussions about tax law between the French tax authorities (FTA) and taxpayers and their representative bodies, particularly the main bodies representing business (so called Medef and Afep) during the law-making process.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
To be filed
Corporate income tax return (Form 2065)
Within 3 months at the end of each tax year
For companies closing their accounts on December 31st, it is to be filed by the second working day following May 1st of the following year
Transfer pricing return (Form 2257) includes general information about the group’s activities and intangible assets of and more specific information about the French subsidiary transactions with related entities
Within 6 months of the filing of the corporate income tax return
Country by country report (Form 2258)
Within 12 months at the end of the tax year
Value added tax returns (Form 3310)
On a monthly basis
Contribution on added value of enterprises return – Contribution on companies added value (CVAE)
By the second working day following May 1st of the year following the year in which CVAE is due
Investment income ('Imprimé Fiscal Unique', Forms 2561) concerning entities paying investment income (dividend and interest)
By February 15th
New wages declaration including tax aspects ('Declaration Sociale Nominative') implemented for the needs of the new withholding at source to be made by enterprises on their employees' remunerations as from 1st January 2019
By 5 or 15 of each month
General statute of limitation
Maintenance of records / booking
General tax statute of limitation
31 December of Y+6
Corporate income tax / value added tax VAT / Contribution on companies' added value CVAE
31 December of Y+3
31 December Y+1
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
France does not have a regulatory authority dedicated to tax issues. The French system is based on taxpayers' declarations and tax administration's audits, which may lead to tax reassessments by specialised bodies such as the 'Direction des Grandes Entreprises' (Directorate for the largest companies) or 'Direction des vérifications nationales et internationales' (Directorate of national and international audits) for the largest companies, or local tax services for small and medium-sized enterprises (SME).
However, the French tax administration (FTA) may issue rulings in specific matters such as transfer pricing (Article L 80 B of the tax procedure code). These rulings provide the taxpayer with protection and legal certainty as the tax authorities take an official stance on a specific question.
Besides, an advanced tax ruling may be requested by a taxpayer before the 'Direction de la Legislation Fiscale' (Tax legislation directorate) on any particular situation which triggers a specific tax issue in order to secure this situation, such as a foreign investment fund applying for a special French tax regime (OPCI or FPCI) which refers to criteria unknown from non-French investment funds. As a general rule, it takes no less than 6 months to get an advance tax ruling. The lack of response does not generally mean an implicit agreement.
Furthermore, special committees have been implemented in highly technical matters to improve the discussions and relationships between the FTA and the taxpayers and provide them with recommendations, such as the 'comité consultatif du crédit d'impôt pour dépenses de recherche' (committee for research and development tax credit).
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Administrative courts have jurisdiction over most tax matters, such as income tax and VAT (to the exception of registration duties, inheritance and gift duties, 3% real estate tax and wealth tax which are dealt with by the judicial courts). The first instance jurisdiction is the 'tribunal administratif' (administrative court) or 'Tribunal de Grande Instance' (judicial court). Appeal lies with the 'cour administrative d'appel' (administrative court of appeal) or 'Cour d'appel' (court of appeal). Finally, the 'Conseil d'État' (Administrative Supreme Court) or the 'Cour de cassation' (Judicial supreme court) reviews the legal conformity of decisions by lower courts and in doing so may, totally or partially, override a decision. The case is either settled by the Administrative Supreme Court (general case) / the Judicial Supreme Court or sent back for review to the administrative court of appeal / Cour of Appeal. As a general rule, it takes between 8 to 10 years to reach a settlement before the Administrative Supreme Court.
Preliminary injunctions ('référé') aimed at implementing temporary measures at an early stage can be ruled by Courts to prevent further damage being caused upon request of the taxpayer.
As an example, The FTA can be condemned to a 'référé-provision' (provisional payment) to the profit of the taxpayer – especially in matters relating to VAT credit, withholding tax claim, and reimbursement relating to the 3% surtax on dividends or CVAE. It takes usually between 4 to 6 months. The taxpayers can also challenge through preliminary proceedings the French tax collector's reject of the guarantees they provide to obtain a deferral of payment during the tax litigation.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Corporate income tax is paid through 4 instalments during the said financial year (15 March, 15 June, 15 September, 15 December Y) and the balance is due on 15 May of the next financial year (for company whose financial year ended 31st December of a given year). Personal income tax is currently paid through quarterly instalments and balance during the year after the one upon which the tax is due. A major reform had been voted in order to withhold the personal income tax on a monthly basis ('le prélèvement à la source') and should apply as from 2019.
VAT is repaid to the Treasury between the 15 and 20 of the month following the one upon which the tax is due.
The contribution on added value ('CVAE') is paid by two instalments of 50% assessed from the added value of the last return in June and in September. The balance (if any) is paid in May of the following year. The contribution on enterprise real estate ('CFE') is paid in June and in September
Further to a tax reassessment, and once the taxpayer receives a 'Avis de mise en recouvrement' (tax collection notice), the latter must pay the whole amount of reassessed tax including penalties (5% or 10%) and interest for late payment (at a rate of 0.4% per month or 4.8% per year).
If the taxpayer decides to challenge the tax collection notice, via a tax claim and then to go to court, payment of the reassessed tax may be deferred until the end of the first level of the court proceedings provided that the taxpayer secures the payment and provides the FTA with financial guarantees.
If the court rules in favour of the taxpayer, the FTA will repay the amount paid initially by the taxpayer, increased by late interest, or will have to refund the cost of the guarantees the taxpayer put in place if he asked for a deferral of payment.
If the court rules in favour of the FTA, the payment of the reassessed tax including penalties and interest for late payment (same rate of 4.80% per year cut in half as from 2018) becomes final and the taxpayer must proceed to payment if he asked for a deferral.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
The FTA is required to keep confidential any kind of information they may be granted access to in the course of an audit, and do so in practice. Other administrations (criminal enquiries, Social Security) can be provided with information about a taxpayer.
France is a signatory of the multilateral Convention on Mutual Administrative Assistance in Tax Matters and has activated exchange relationships for the Common Reporting Standard information with 50 jurisdictions. France has authorised the approval of the multilateral agreement by the law 2015-1778 dated December 28, 2015 and the Common Reporting Standard is applicable in France since January 1, 2016.
In order to comply with the Directive 2011/16/UE dated February 15, 2011 modified by the Directive 2014/107/UE that resumed the Organisation for Economic Co-operation and Development (OECD) reporting and the Directive 2015/2376/UE, the law 2015-1786 of December 29, 2015 provides that French financial institutions have to declare specific information for the application of the automatic exchange of information provided by French tax conventions but also for the application of the Directive regarding the administrative cooperation and finally for the Common Reporting Standard.
Companies are now required to disclose the identity of their beneficial owners – i.e. individuals owning, directly or indirectly, more than 25% of the company’s equity or voting rights or, failing that, the person exercising control over the management or management bodies within the companies and undertakings for collective investment.
As of 1 April 2018, this obligation will extend to all legal entities registered before 1 August 2017. This means that all legal entities currently registered in France needed to identify their beneficial owners and prepare to file the declaration of beneficial owners before 1 April 2018.
The right of communication of the beneficial owner's register is therefore limited to the legal representatives, some entities listed within the French monetary and financial code (such as judges, custom officers or General directorate of public finances, investigators of the French financial market authority), entities falling within the scope of anti-money laundering and terrorist financing (such as credit institution, insurance companies, mutual insurance, investment service providers, etc…), or any person justifying a legitimate interest, upon an order made by the judge engaged in the supervision of the companies register.
What are the tests for residence of the main business structures (including transparent entities)?
French corporate income tax is not based on fiscal residence or registration but on the principle of territoriality: only profits derived from activities carried out in France are taxable in France.
As a consequence, an entity, be it French or not, is to be considered to be carrying out activity in France if:
- it has an establishment in France: the notion of establishment provided for in the French tax code (FTC) is close to that of permanent establishment provided for in international tax treaties;
- it has in France a representative with a dependent professional status. This notion is also close to that of dependent agent provided for in international tax treaties; or
- it performs in France a complete cycle commercial complet (' cycle of business ') separate from the company’s other domestic business.
As the case may be, these criteria could be superseded by the stipulations of a tax treaty dealing with the existence of a Permanent Establishment ('PE').
The French Parliament passed a bill authorizing ratification of the OECD's multilateral instrument (MLI) on 5 July 2018. The MLI allows jurisdictions to transpose into their existing bilateral income tax treaties, measures to prevent base erosion and profit shifting. The MLI should enter into force in France on 1 November 2018 and to be effective beginning 2019. In terms of PE, the MLI has (i) modified the ‘threshold test’ for activities carried out by an enterprise in another territory that would treat it as having a taxable presence and (ii) dealt with agents acting on behalf of foreign enterprises -the so-called 'Dependant Agent Permanent Establishment'. Under the MLI, an independent agent can still be a PE if it is acting exclusively or almost exclusively for ‘closely related’ foreign resident enterprises. The MLI also introduces an additional anti-fragmentation condition to the preparatory or auxiliary activities exemption potentially applicable where an enterprise or closely related enterprise also carries on activity through another fixed place of business in the same territory. These modifications are likely to be automatically applicable in the Tax Treaties signed by France with States which will have opted for similar provisions.
Foreign companies may also be taxable in France, even if they do not perform any activity there, because they have an interest in a French pass-through partnership performing an activity in France.
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
When a company is facing a tax audit, the tax agent is immediately requesting the local file relating to the transfer pricing (TP) policy of the group and the annual tax forms 2257 relating to TP, as well as any ruling granted by the FTA. However, no significant increase in TP's tax reassessments has been noted yet: the FTA agents still tend to ground these tax reassessments on the theory of the abnormal management act, rather than on specific TP provisions.
This situation may change in a near future when the FTA will exploit the recent TP data collected from the taxpayers as well as the data collected via the new Country by Country Reporting filed for the first time in 2017.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
The FTC provides for a CFC rule that constitutes an exception to the territoriality principle: only profits derived from activities carried out in France are taxable in France. According to this rule, profits realised by an entity, which is, directly or indirectly, more than 50%, owned by a French company and which is located in a privileged tax regime country, are deemed to be received by the French company in due proportion of the shares owned and therefore, are to be taxed in France. An entity is considered to be located in a privileged tax regime country if the effective corporate tax rate applied in this country is at least 50% lower than France’s.
The French thin cap regime provides that the deductibility of interest paid by a French company to related parties is limited if the interests exceed 150,000 € and if the following criteria are cumulatively met:
- the overall indebtedness regarding loans granted by related parties exceeds 1.5 times the company’s net equity;
- the amount of interest paid to related parties exceeds 25% of the adjusted EDITDA;
- the amount of interest paid to related parties exceeds the amount of interest received from related parties.
The portion of interest paid which exceeds the highest of the three set criteria is not deductible. These rules can be extended to interest borne with respect to a bank loan when certain guarantees have been granted by affiliated companies to the lender.
French tax law provides for several other rules aiming at limiting the deductibility of interest:
- the rate applied to the inter-company loan must not exceed a specific tax rate (which is an average of the rates set for loans granted to companies by financial institutions, 1.52% in the course of 2018). If so, the exceeding portion of interest paid is not deductible;
- 'Carrez Amendment', which provides that interest on loans raised for the purpose of acquiring shares is non-deductible if the decisions concerning the acquired shares are not actually made in France (to be removed by the tax bill for 2019);
- 'Charasse Amendment', which provides for financial expenses paid on related-party acquisitions to be added back, to a certain extent, within the context of a French tax group;
- a global limitation corresponding to 25% of interest expenses, known as the 'Rabot' and,
- Anti-hybrid stipulation, which forbids the deduction of interests, if the creditor is not taxable, at least at 8.33% (i.e. 25% of the French CIT) on the financial proceeds.
The FTA applies the arm’s length principle: prices applied to transactions between related parties must be similar to prices that would have been agreed upon for transactions between independent companies. If not, the FTA may presume an indirect transfer of profits from the French company to its foreign affiliate and reassess its taxable income accordingly, that is to the extent of the amount deemed to have been unduly shifted. The burden of proof regarding an indirect transfer of profits lies with the tax authorities.
The rules aiming at limiting the deductibility of the interest should be deeply amended by the 2019 Finance Bill in order to transpose the Anti Avoidance Directive ('ATAD') into the French interest limitation regime. The Finance bill should limit the deduction of net financial charges (including debts subscribed with a Bank or a third party) to either 30 % of the entity's EBITDA or 3 million euros (if higher) with a calculation made at the group level. The "rabot" would be removed and the thin-capitalization rules would be deeply amended.
The FTC provides for the possibility of a bilateral advance pricing agreement between multinational companies and the tax authorities which would aim at fixing the transfer pricing method to be used in cross-border transactions.
The State Aid action has not dramatically changed the situation, but just increased the already thorough examination of the APA requests.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
The general anti-abuse rule applicable in France is the 'abus de droit' (abuse of law). It allows the FTA to disregard or disqualify any legal transaction if it is deemed to be abusive from a tax perspective - i.e. (i) simulation or (ii) in contradiction with the spirit of the law and solely motivated by the avoidance or mitigation of tax liabilities. It covers all direct and indirect taxes applicable in France.
It is not only raised in negotiation but commonly litigated since the French tax position is not always followed by the judges. If the FTA bring a claim under the GAAR, either the taxpayer or the FTA can choose to go before a 'Comité de l’abus de droit fiscal' (Committee for anti-abuse of tax law), which is an independent committee that will review the case. Its review is not binding but the burden of proof remains with the FTA if the review is in favour of the taxpayer's position. Penalties are increased to 40% in case of abuse of law and can reach 80% in case of tax fraud.
Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?
The Directive UE/2016/1164 dated July 12, 2016 called 'ATAD I' provides for five anti-avoidance measures relating to the interest limitation, the exit taxation, the general anti-abuse rules (GAAR), the controlled foreign companies (CFC) and the hybrid mismatches, all derived from the OECD BEPs recommendations. This Directive shall be transposed by the end of 2018 for an application as from 1 January 2019, except for the interest limitation that should be enforced no later than 1 January 2024.
France has already implemented similar tax measures but will have to amend the existing provisions (here above thin cap) in order to comply with the Directive's requirements.
The Directive UE/2017/952 dated May 29, 2017 called 'ATAD II' amends the Directive ATAD I and provides for the implementation of Action 2 of the BEPS' recommendations which is related to the hybrids mismatches. As the French rules only tend to remedy to double deeps (i.e. double non-taxation) situations, the European requirements will have to be transposed by the end of 2019 in order to strengthen this limitation.
In your view, how has BEPS impacted on the government’s tax policies?
BEPS have already largely influenced the French government's tax policies by anticipating the enforceability of the hybrid-mismatches and also the country-by-country reporting, and will keep making a difference. French government's negotiations of new and/or renewal of double tax treaties will be impacted in a major way by the signature of the multilateral international convention. This situation may even bring up again the European discussions around a common taxation (ACCIS project).
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
The French tax system does follow the recognised OECD Model and provides for the taxation of the following:
a. Taxation of business profits
The standard rate of corporate income tax (CIT) is 28% for a taxable profit up to EUR 500,000 and 33.33% beyond EUR 500,000.
Additional contributions may also be due: a 3.3% social contribution based on the income tax in excess of EUR 763,000. The effective corporate income tax rate is 34.43%.
SMEs are entitled to a 15% reduced rate up to EUR 38,120 taxable profits.
The Finance Act for 2018 provides for a progressive decrease of the standard corporate tax rate: from 33.33% to 25% in 2022 (the 3.3% social contribution will remain applicable so the effective tax rate will be decreased from 34.43% to 25.825%).
This progressive decrease will first apply to SMEs which will benefit from a progressive CIT rate on their 2017 taxable profits: (i) 15% up to EUR 38,120 (ii); 28% between EUR 38,120 and EUR 500,000 and (iii) 33.33% over EUR 500,000.
For fiscal years starting as of 1st January 2019, all French companies will benefit from a 28% CIT rate on their 2018 taxable profits up to EUR 500,000 (the standard 33.33% CIT rate will remain applicable to taxable profits in excess of EUR 500,000).
For fiscal years starting as of 1st January 2018, the 28% CIT rate will fully apply to all French companies which annual turnover does not exceed EUR 1 billion (this limit will be determined on a consolidated basis for tax consolidated groups). As from 1st January 2019, the 28% rate will apply for all French companies up to EUR 500,000 and a 31% rate to taxable profit over EUR 500,000.
The tax bill for 2018 provides for another reduction of the CIT rate:
- for fiscal years starting from 2020, the 28% CIT rate will become the standard rate as it will apply to all French companies to their overall taxable profit;
- for fiscal years starting on or after 1 January 2021, a 26.5% CIT rate would apply for all entities.
- for fiscal years starting on or after 1 January 2022, the 25% CIT rate would apply for all entities.
b. Taxation of employment income and pensions
French tax residents are taxed on a worldwide basis. Gross income from employment and pensions are subject to two specific social contributions:
- the 'contribution sociale généralisée' (CSG - generalised social contribution ) applied at a 9.2% rate; and
- the 'contribution au remboursement de la dette sociale' (CRDS - social security debt contribution) applied at a 0.5% rate.
Regarding income tax, employment income and pensions are taxed on a net basis according to a progressive schedule:
- 14% from EUR 9,807 up to EUR 27,086;
- 30% from EUR 27,086 up to EUR 72,617;
- 41% from EUR 72,617 up to EUR 153,783; and
- 45% over EUR 153,783.
Individuals earning more than EUR 250,000 are liable to an additional 'contribution sur les hauts revenus' (progressive contribution):
- 3% from EUR 250,000 up to EUR 500,000 (for single taxpayers) or EUR 500,000 up to EUR 1 million (for married taxpayers or taxpayers under a civil partnership); and
- 4% over EUR 500,000 (for single taxpayers) or EUR 1 million (for married taxpayers or taxpayers under a civil partnership).
c. VAT (or other indirect tax)
The standard VAT rate is 20%. However, the FTC provides for two reduced rates applied to specifically listed goods and services:
- a 10% rate applied to, for instance, agricultural products, medicine and take-away food; and
- a 5.5% rate applied to, for instance, essential food items, gas, electricity and energy-saving equipment and materials.
Some transactions may also be zero rated or VAT exempted, such as exports.
d. Taxation of savings income and royalties
Regarding companies, savings or investment income and royalties are in principle taxed at the standard 28% and 33.33% CIT rate. However, royalties from the license of patents or patentable inventions may be taxed at a 15% reduced rate (French IP box regime).
Regarding individuals, investment income and royalties are taxed according to the above-mentioned progressive schedule. Investment income (i.e. interests or dividends) is subject to a compulsory 12.8% withholding tax as an advance payment of income tax assessed under the progressive system (tax withheld in excess comes as a reduction of final income tax).
Social contributions are to be added at a global 17.2% rate. In conclusion, investment income is subject to a 30% flat tax on the gross amount (consisting of 12.8% of income tax and 17.2% of CSG/CRDS). If it is more favorable, the taxpayers with the lowest incomes could therefore opt for taxation with the progressive system (with the application of the 40% rebate for dividends). The option will be applicable to all the taxpayers' investment income or capital gains on shares earned during the year under which the option is made.
Savings income and royalties are also liable to the additional 3% and 4% 'contribution sur les hauts revenus' (as described above).
e. Taxation of income from land
Property is subject to taxation according to the income tax progressive schedule as far as individuals are concerned, and at the standard CIT rate as for companies (except the REITs which benefit from 0% taxation).
Income from land is also liable to the additional 3% and 4% 'contribution sur les hauts revenus' (as described above).
f. Taxation of capital gains
Regarding companies, capital gains are in principle taxed at the standard CIT rate plus the additional contributions. However, gains derived from the sale of shares may be considered as long-term capital gains, and therefore partially CIT exempted, if the company has owned at least 5% of the shares for at least 2 years. If so, only 12% of the gross capital gain is taxed at the standard CIT rate, resulting in a 4% effective tax rate.
Yet, please note that long-term capital gains on the sale of shares in real estate companies are taxed at the standard CIT rate plus the additional contributions.
Regarding individuals, capital gains for shares are taxed according at the '30% flat tax' (personal income tax at 12.8% + social contributions at a global rate of 17.2%) on the gross amount (without any rebate).
For shares acquired before 1st January 2018, individuals can opt for the application of the progressive system (as described above) of income tax. The option will be applicable to all the taxpayers' investment income or capital gains on shares earned during the year under which the option is made. In case of option for the progressive system, rebates apply to capital gains on shares depending on the time elapsed since the assets were acquired:
- 50 % rebate after 2 years of holding; and
- 65 % after 8 years.
For immovable property, capital gains made by Individuals are subject to a fixed rate of 19%. A rebate applies after 5 years of holding which leads to an exemption after 22 years for income tax and 30 years for social contributions. The capital gain deriving from the sale of the individual's main residence is exempt from income tax.
Capital gains are also liable to the additional 3% and 4% 'contribution sur les hauts revenus' (as described above).
g. Stamp and/or Capital duties
Some goods and deeds are subject to stamp duties.
- the sale of a business ('fonds de commerce') - tangible and intangible assets included - is taxed according to progressive rates applied on the price paid: •3% from EUR 23,000 up to EUR 200,000; and
- 5% over EUR 200,000.
- with respect to the acquisition of real properties, it also triggers the payment of stamp duty where the construction has been completed for more than 5 years at the time of the acquisition. Stamp duty is assessed on the purchase price agreed upon by the parties, increased by any charge or liability of the seller transferred to or assumed by the buyer at the global rate of 5.80%. An additional tax of 0.6% applies in case of acquisition of commercial premises located in the Parisian area. The land registrar's contribution of 0.1% brings the overall taxation at 6.51% in Paris area.
By exception, a reduced rate of 0.715% applies to (i) acquisition of 'terrains à bâtir' (building lots), (ii) acquisitions of new buildings (i.e., completed or renovated within the last five years), (iii) acquisitions through 'vente en l'état futur d'achèvement' (VEFA - buildings before completion). In addition, the reduced rate also applies to acquisitions of property by a buyer liable to VAT who undertakes to re-sell the property within five years of the date of acquisition.
Finally, a fixed duty of EUR 125 is payable for the acquisition of a property by a buyer liable to VAT where it undertakes to carry out work on the property in order for it to qualify as a new building or work required to complete an incomplete building within four years of the date of acquisition.
In any case, notary fees at a 0.814% (excluding VAT) rate will apply to the transaction.
Duties related to a transfer of a non-quoted company shares ('société anonyme', 'société en commandite par actions' or 'société par actions simplifiée') are subject to a single 0.1% rate;
The transfer of shares of a company in which the capital is not divided into shares of stock ('sociétés à responsabilité limitée', 'société civile', 'société en nom collectif') is subject to a 3% registration duty; and
The sale of shares in a real estate company – i.e. a company whose main assets are immovable property or property rights (50% or more) – gives rise to a 5% registration duty.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The taxable base is first determined according to the accounting principles provided for in the 'Plan Comptable Général' (General Accounting Standards). Then, the FTC provides for specific provisions to the application of which results in the taxable income to be increased (e.g. limitation of deductible interests, transfer pricing, CFC and GAAR rules) and/or decreased (e.g. accelerated depreciation, loss carry-forward, participation-exemption regime).
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
All entities carrying on a profit-making activity are taxable entities. Hence, partnerships are taxable entities, but income tax is paid by partners.
As a general rule, France tax law does not acknowledge transparent entities except for the "société immobilière d'attribution" ruled by Article 1655 ter of the French tax code (i.e. companies irrespective of their legal form whose sole purpose is the acquisition or construction of buildings or groups of buildings in order to of their division by fractions intended to be allotted to the partners, in property or enjoyment, either the management of these buildings or groups of buildings thus divided, or the hiring, on behalf of one or more members of the company, of all or part of the buildings belonging to them). However in practise there is a limited number of those companies.
The French 'société civile immobilière' (SCI) is the most common vehicle used for French real estate investments: flexible, quick & cheap, allows a tax consolidation of the profits and losses derived from the different stakes without any tax consolidation formalism, but with unlimited liability of the partners.
The French 'Société Civile de Placement Immobilier' (SCPI) is a mutual fund investment structure used for collective real estate investment. The purpose of a SCPI is the acquisition and management of a professional real estate asset. The management company deals with collecting the money from private individuals, finding property in which to invest, managing this building stock and redistributing incomes to its unitholders.
The French 'société en nom collectif' (SNC) is a commercial vehicle which can be found in real estate mixed with services such as hotels, care homes, student houses etc…with similar characteristics as the SCI.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
French corporate income tax is not based on fiscal residence or registration but on the principle of territoriality: only profits derived from activities carried out in France are taxable in France. As a consequence, an entity, be it French or not, is to be considered to be carrying out activity in France if:
- it has an establishment in France: the notion of establishment provided for in the FTC is close to that of permanent establishment provided for in international tax treaties;
- it has in France a representative with a dependent professional status. This notion is also close to that of dependent agent provided for in international tax treaties; or
- it performs in France a complete 'cycle commercial complet (cycle of business) separate from the company’s other domestic business.
As the case may be, these criteria could be superseded by the stipulations of a tax treaty. With the ratification of the MLI, these criteria may evolve in the tax treaty signed with certain States.
In addition, passive income (dividends, interest and royalties) received by a French entity is taxed in France.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
The FTC provides for several specific taxation regimes covering various fields such as research and development or starting businesses. However, the FTC does not provide for specific provisions regarding financial services.
Here is an overview of some of these specific regimes:
- headquarters and centers of logistics of multinational companies: under prior agreement with the FTA, headquarters may determine their taxable profits according to their profit margin computed as follows: profit margin ratio applied to ordinary operating expenses;
- regime of starting businesses: under certain conditions, such a business may enjoy a total exemption of CIT for the first 23 months following the month it was set up and, for the next three 12-month periods, only 75% (1st period), 50% (2nd period) and 25% (3rd period) of profits will be taxed;
- young innovative business: SMEs engaged in significant research and development activities may be fully CIT exempted the first profitable year and, the following year or next profitable year, only half of the profits will be taxed; a tax credit for research and development may be granted which amounts to 30% of research and development expenses within the limit of EUR 100 million and 5% over this threshold.
- Tax free zones regime to revitalize economically depressed areas (as established by Decree or : under certain conditions a company carried out a new business in these areas can benefit from a temporary exemption of corporate income tax, business tax and property tax and sometimes reduced payroll taxes for the first five years.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Capital gains from the sale of patents, patentable inventions and industrial manufacturing processes attached to those patents and patentable inventions, as well as licensing income related to such intangible assets, are taxed at a 15% CIT rate (effective tax is 17.1%).
However, the French patent box regime may be an issue in the context of BEPS Action 5. According to the 'nexus' approach chosen by the OECD, income derived from intangible assets may benefit from an IP regime only to the extent that it is generated by qualifying research and development expenditures. The French patent box regime was considered to be inconsistent with this approach. However, the French authorities consider that the patent box regime is not constitutive of a harmful practice and are not currently planning to change the regime.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
The FTC provides for a tax consolidation regime that allows consolidation of profits and losses of individual group companies. The head of the group is solely liable for the payment of income tax on the aggregated taxable income on behalf of the whole group. Intragroup transactions are neutralised within the tax consolidated group.
To set up a tax group, a French company must not be 95% or more owned, directly or indirectly, by another French company and must own, directly or indirectly, at least 95% of one or more French affiliates that would join the tax group.
Tax losses are transferred by the members of the group to the head (parent-company) which is the only entity liable for CIT within the tax group. Tax losses can be carried-forward without time-limitation, and offset within a ceiling (of 1 million + 50% taxable profit).
2019 Finance Law should amend the tax consolidation group regime concerning the determination of the group taxable regime:
- removal of the neutralization of the intragroup waiver of debt with a financial nature or the equivalent subsidies;
- removal of the neutralization of the non-deductible share of dividends for financial expenses (i.e. 5% on dividends) for dividends paid outside the parent subsidiary regime (the share for financial expenses would be limited to 1% in such a case),
- removal of the non-deductible share of capital gain under parent-subsidiary exemption regime de la QPFC (i.e. 12% of the capital gain) which would be reduced at 5% (from 2019 or later).
Are there any withholding taxes?
Dividends paid to a non-resident company are subject to a 30% withholding tax for non-resident company, 15% withholding tax for not-for-profit organization established in the European Union, in Island, in Norway or in Liechtenstein and a 12.8% withholding tax for non-resident individuals on the gross amount paid, unless provided otherwise by relevant tax treaties. If the dividends are paid to a company located in a non-cooperative jurisdiction, the rate is increased to 75%. As of 8 April 2016, seven countries are considered non cooperative countries by French authorities: Botswana, Nauru, Brunei, Niue, Guatemala, Panama and Marshall Islands.
According to the EU Parent-Subsidiary Directive (2011/196), transposed into article 119 ter of the FTC, dividends paid by a French company to its parent located in another EU member state are, under certain conditions, withholding tax exempted.
Interest paid to a non-resident company is generally not subject to any withholding tax, unless the payment is made to an entity located in a non-cooperative jurisdiction. If so, the 75% rate will also apply to the gross amount.
Royalties paid to a non-resident company are subject to a 33.33% withholding tax on the gross amount paid.
According to the EU Interest and Royalties Directive (2003/49/CE), transposed into article 119 quater of the FTC regarding interest and article 182 bis of the FTC regarding royalties, interests and royalties paid by a French company to its parent located in another EU member state are, under certain conditions, withholding tax exempted.
Are there any recognised environmental taxes payable by businesses?
Ecologic malus is due by any consumer which acquire a non-electric car (higher with the carbon dejections).
The General Tax on Polluting Activities ( TGAP ) currently covers the following categories of polluting activities : waste storage and treatment; emission of polluting substances into the atmosphere; delivery or use of lubricants; delivery or use of laundry preparations; delivery or use of extraction materials; put on the consumption of fuels.
A recycling tax is also applicable on electric and electronic devices called 'Eco participation'. It is borne by the consumers.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
In theory, dividends received are taxed at the standard CIT rate.
However, the FTC provides for a participation-exemption regime. Dividends received by a qualifying parent-company may be CIT exempted if the parent company has owned at least 5% of the French company for at least 2 years. In that case, only 5% of the amounts of dividends distributed remain taxable to CIT, leading to an effective taxation of 1.72% of dividends distributed (i.e. 34.43% x 5% = 1.72%) or 1.4% (i.e. 28% x 5%).
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?
Tax advantages lay in the CIT credit for research and development expenses and the inbound assignee regime for individuals. The overall taxation level should decrease with the progressive CIT reduction and wealth tax limited to real estate owned directly and indirectly. France offer a very attractive tax regime for inbound assignees who have not been tax resident since the last 5 civil years under certain conditions (tax exemption for the additional compensations received from the assignment in France, including part of the remuneration corresponding to a professional activity performed abroad during the 8 first years following to the year of arrival, 50% tax exemption for interest rates, dividends, royalties, capital gains, industrial and intellectual gains during the 8 first years following to the year of arrival, exemption of wealth tax on real estate properties located outside France until the 31st December of the fifth year following to the year of arrival).
France has a wide tax treaty network and the tax treaty signed with the United Kingdom remains applicable despite the Brexit.
Most of the advantages to locate or relocate a business in France are non-tax related, such as excellent education, housing and medical systems, good recruitment pool and a fine transportation networks (airports, train, cars and underground) as well as available office premises in the Paris area and a steady economy.
The main disadvantage of France would be the instability of the tax regime which make tax planning hard and the high level of social charges.