On April 16, 2015, the French Senate approved a measure designed to support investment made by businesses to speed up the modernization of their productive assets. This is a one-year exceptional measure that offers businesses the possibility to benefit from an additional “bonus” depreciation of 40%. In other words, it allows certain equipment to be depreciated up to 140% of their value.
The French Tax Authorities have just released an instruction that provides detailed information on how this exceptional measure should be implemented.
Following a recent change in the administrative doctrine governing the use of the Competitiveness and Employment Tax Credit (Crédit d’Impôt pour la Compétitivité et l’Emploi), such tax credit may henceforth be offset against corporate income tax installments.
Like every year, the Finance Bill supplements existing tax rules and/or create new tax schemes.
For 2015, the main tax provisions relating to businesses concern primarily horizontal tax consolidation schemes, the reverse charge mechanism regarding VAT due on imports, the single 19% tax rate on real estate capital gains earned by non-residents, the repeal of the obligation to appoint a tax representative in certain circumstances, the imposition of higher penalties for non-compliance with transfer pricing documentation requirements, etc.
Since the adoption of the Second Amended Finance Bill for 2012 on August 16, 2012, natural persons who are not French tax residents are liable for the payment of social levies (contribution sociale généralisée - general social contribution - and contribution pour le remboursement de la dette sociale - social debt repayment contribution) on rental income and capital gains derived from real estate assets located in France.
This scheme has been challenged before European courts and its future looks uncertain.
Both the choice of sales mechanisms and the reorganization of commercial functions within a group can entail discussions with the French tax authorities when their implementation leads to the erosion of the tax base in France.
Given the recent developments in French tax case law, a brief overview of the pitfalls to avoid can certainly be useful for international groups doing business in France.
Management packages have developed with the rise of LBO deals. They serve as an incentive to managers - keys persons to the success of a LBO deal - by enabling them to have a stake in the capital and, therefore, to benefit from an exit capital gain, in conditions that are generally relatively favorable.
For a long time, common practice considered the exit capital gain as a capital gain on securities, as opposed to a salary, until the French Tax Authorities (the “FTA”), through a Tax Instruction initially published in 1995, updated since then and still in effect today, made it clear that taxable gains earned under schemes providing access to capital other than those schemes specifically provided for by the French legislator (stock options, nowadays free shares, etc.) would likely be subject to re-characterization.
Yet, the first tax inspections were carried out only later, i.e. at the beginning of the 2000’s.
In a decision issued on September 26, 2014, the Conseil d’Etat (French Supreme Administrative Court) ruled - for the first time to our knowledge - on the nature of the taxable gain.
The Research Tax Credit (“RTC”) is a tax incentive aimed at encouraging companies in their Research and Development efforts. The RTC is calculated on the basis of the R&D expenses incurred by the company.
The French Accounting Standards Authority (Autorité des normes comptables) has published a note specifying that the amount of the Competitiveness and Employment Tax Credit (Crédit d’Impôt pour la Compétitivité et l’Emploi, hereinafter “CICE”) should be recorded in the credit side of a dedicated sub-entry of the expenditure accounting entry line n°64 – “staff-related expenses”.
To restore the competitiveness of French businesses, the Government has adopted a national growth pact, the flagship measure of which is the so-called Competitiveness and Employment Tax Credit (Crédit d’Impôt pour la Compétitivité et l’Emploi, hereinafter “CICE”).
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