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French Finance Bill Amended to Fall in Line with EU Law
Following the recent ECJ Santander case on French dividend withholding tax, the French government has been led to align its tax legislation to that of the European Union. To this end, an Amending Finance Bill was announced on 16 August 2012, in the hope of adjusting previous tax measures. Taxand France provides a summary of the new provisions and how they will affect multinationals operating in France.
Non-deductibility of financial debt waivers
For the financial year ending after 4 July 2012, debt waivers granted to another company are deductible only if they (i) have a commercial nature, or (ii) are granted to a company in financial difficulties and subject to collective insolvency proceedings, or to a conciliation procedure.
As from this reform, debt waivers granted by a French holding company to its subsidiaries should not be deductible for corporate income tax purposes, so long as they do not have a commercial nature.
Abolishment of withholding taxes on dividends paid to foreign Undertakings for the Collective Investment of Transferable Securities (UCITS), and creation of an additional contribution to the CIT on distributions Confirming the decision of the European Court of Justice (ECJ) dated 10 May 2012, the Amending Finance Bill has abolished the withholding taxes levied on dividends paid to foreign UCITS, as hindering the free movement of capital.
In order to compensate this shortfall in the Budget, a new additional contribution to the Corporate Income Tax (CIT) has been implemented. This contribution will be paid by the French distributing companies and will amount to 3% of the distributions backdated from 17 August 2012. Some distributions will be excluded from the scope of this contribution, such as distributions realised within a tax consolidated group or by companies considered as SMEs under EU regulation.
Financial transaction tax (FTT)
The FTT applies to the transfer of ownership of any equity instrument issued by a French listed company whose market capitalisation exceeds EUR1 billion. The tax is applicable regardless of the localisation and the nature of the purchaser, and regardless of the location of the transaction. Some specific transactions may, however, be excluded from the FTT.
The FTT rate is 0.2% of the value of the equity investment. The French tax administration has released a list of companies whose equity transactions are subject to this tax.
Increase in the rate of the so called "forfait social"
This contribution is assessed on earnings and remunerations paid by companies which are subject to the general social contribution (CSG) but excluded from the social security contributions base.
Amongst others, the profit-sharing premium, the amounts paid by the employers to employee savings plans, the amounts paid by application of a profit sharing agreement, as well as the amounts paid by the employers to fund complementary pension benefits, all fall within the scope of the "forfait social".
For earnings and remunerations paid from 1 August 2012, the rate of the "forfait social" has been increased up to 20% (formerly 8%).
Employer's contribution on stock options
For stock options granted since 11 July 2012 the rate of the employer's contribution has been increased from 14% to 30%.
This Amending Finance Bill will certainly have an impact on the level of taxation. It is recommended that multinationals conducting a business in France should assess to what extent they may be affected by the new provisions, as it will vary on a case by case basis.