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Business Tax Reform


The Financial Bill for 2010 abolishes the business tax ("TP"), which will be replaced by a new local economic levy [contribution ?conomique territoriale] (hereinafter "CET").Taand France analyses the impact of this here:

The new levy comprises two separate but complementary taxes:

  • The business real estate tax or "CFE" [cotisationfonci?re des entreprises], which corresponds to the existing aspects of the TP that is levied only on immovable property.
  • Therefore, plant and movable property will no longer be taxable.

The essential rules that are applicable in the field of TP have been maintained in the new system (i.e. the determination of the land registry rental value of immovable property, reference period and place of taxation).

However, the land registry rental value of industrial immovable property will be eligible for a 30% reduction.

A proposed framework for the 2010 taxation rates will be set by local government.

  • The tax on business value-added or "CVAE" [cotisation sur la valeur ajout?e des enterprises] which corresponds to the current minimum tax levied on value-added.

The value-added (VA) used to calculate the CVAE and the capping of the CET (see here-below) will be limited to 80% of the turnover where the turnover is less than EUR 7.6 million and to 85% where the turnover is more than EUR 7.6 million.

The CVAE will be payable by all taxpayers whose turnover exceeds EUR 152,500 at a flat rate of 1.5% (compared to EUR 7.6 million under the current system). However, companies may claim a relief equal to the difference between:

  • VA x 1.5%
  • VA x a progressive rate.

The progressive rate will be in line with the turnover (maximum rate of 1.5% as from EUR 50 million).

For 2010, the CET will not exceed 110% of the TP which would have been due in 2010 under the 2009 rules. Companies may claim a relief for the excess.

In all cases, the CET will be capped at 3% of the business's value-added (VA) (compared to 3.5% through 2009).

Change of the tax consolidation system (Article 223 A of the General Tax Code)
The Amended Financial Bill for 2009 provides that French companies, held by a French holding company through companies located in other EU countries, may be members of a tax consolidated group headed by the French holding company.

The aim of this reform is to bring French law into compliance with the decision of the European Court of Justice of 27 November 2008 (ECJ, 27 November 2008, C-418/07, Papillon).

This new system applies to the fiscal year ending 31 December 2009. Additionally, companies may apply for the application of this system for the fiscal years ending between 1 September 2004 and 30 December 2009. A claim must be filed in this regard.

Taxand's Take

The reform of the business tax is of great importance to multinationals. This reform will allow a lot of companies to reduce the burden of business tax, the taxation of the equipment and other movable properties with business tax being reduced from from 3.5% to 3% of the rate used to compute the capping of the tax.

However, this reform will increase the tax for some companies, especially those that have big real estate properties.

Since the reform is quite complex, we recommend multinationals seek expert advice to understand the impact of the new tax (CET).

Your Taxand contact for further queries is:
Roland Schneider
T. +33 (0) 1 70 38 88 03

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