France Will Reduce Corporate Tax Rate If Green Book is Adopted
French companies could benefit from a lower corporate tax rate and a reduced administrative burden if the green paper on business tax convergence between France and Germany comes to fruition. Taxand France discusses the impact of the green book on corporate tax rates.
The German and French finance ministers presented their proposals for corporate tax convergence to the other EU ministers of finance last week.
The so-called green book is intended to accelerate the progression towards a common consolidated corporate tax base (CCCTB) in the EU and, if adopted, would lead to France's corporate income tax environment shifting from a small base with a high rate to a broad base with a lower rate.
However, the paper is a policy document rather than a draft law and so is liable to change.
Nicolas Jacquot, Taxand France, said the green book does not actually explain the economic reasons behind the proposed tax convergence between France and Germany and as such, it is probably a political move.
"We don't know exactly where ministers want to go with this," said Jacquot. "I don't think they want to end up with the exact same rules, but they may aim at close enough rules, which would reduce administrative costs for companies instead of working to very different sets of rules."
The key focus areas in the book are: group taxation, taxation of dividends, offsetting of losses, depreciation and amortisation, taxation of partnerships, and corporate income tax rates.
Details in the book suggest France's tax system would undergo greater reform than Germany's, with a potential lowering of the corporate tax rate to bring the two countries' rates closer together along with a possible broadening of the French tax base.
Changes to thin capitalisation rules are also proposed, such as aligning the French rules with the German interest deduction limitation rule, but there are four alternatives in the book and it is still unclear which, if any, would be adopted.
"This document is important as this is the first time, to my knowledge, that it is clearly explained that convergence would imply simultaneous modification of rules on tax base and on tax rate - it is not only a pick-and-choose strategy," said Jacquot.
The two countries have declared that legislative proposals on convergence should be made by 2013 and it seems like a clear attempt to drive faster implementation of CCCTB in the EU.
In a document issued to EU finance ministers last week, Paris and Berlin said: "The convergence targets and the planned timetable are ambitious. However, they reflect a desire to show the way towards greater tax convergence in the EU in order to increase the economic integration of member states, and to support the process initiated by the European Commission with the CCCTB directive proposal."
While convergence is at the top of the political agenda in France at present, the French general elections in May will ultimately decide whether this is something multinationals should concern themselves with.
"We don't know what the future of such a project would be if a left wing candidate wins the election in May," said Jacquot.
"I'm not sure this [tax convergence] would be at the top of the agenda unless Nicolas Sarkozy is re-elected."
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First published in the International Tax Review, 28 February 2012