The French government this week unveiled the draft budget for 2019 that contains tax provisions of the draft Finance Bill for 2019 that would affect companies and individual taxpayers.
Reform of the regime of tax groups
Reform of the tax group regime would apply with respect to financial years opened as from 1 January 2019 and would to conform the French regime with EU regulations (and thus avoid new EU litigation). The proposal would make certain changes of a technical nature including:
Reform of regulations regarding the deductibility of financial charges for companies subject to corporate tax
The proposal to reform the rules concerning the deductibility of financial changes for companies subject to corporate tax—proposed to apply to financial years opened as from 1 January 2019—would implement certain provisions of the EU Anti-Tax Avoidance Directive (ATAD 1) and would aim to simplify the existing regulations, as follows:
Certain other rules would remain unchanged—for instance, the rules relating to the maximum rate for interest paid to related parties; to the non-deductibility of interest paid abroad if the beneficiary is not subject in its country of residence to tax at a rate that is at least equal to 25% of the French corporate income tax, or to the “Charasse amendment” (that restricts the deductibility of financial charges relating to the acquisition from a related entity of shares in a company joining the same tax consolidation group as the acquiring company).
Modification of patent box regime
The proposed modification of the French patent box regime would aim to align the French regime with the OECD “nexus” approach. This taxpayer-favorable regime would only apply to the proceeds of exploitation of or sale of patents (or assimilated intangibles) if the research and development (R&D) operations leading to the development of such eligible assets have been conducted in France.
Also, the reduced corporate tax rate of 15% would apply only to the net result of the licensing of intangible assets (patents, original software, and industrial know-how).
The specific regime would be extended to software protected by copyrights. However, patent-able inventions that have not yet been patented would be excluded from the patent box regime.
Such a patent box regime would be optional.
Introduction of general anti-abuse clause for corporate tax purposes
Under this anti-abuse provision, the determination of the corporate tax basis would not take into account an arrangement or series of arrangements which were implemented in order to obtain (either as a main objective or as one of the main objectives) a tax advantage that is “not genuine” after taking into account all pertinent facts and circumstances. Such an arrangement could include several steps or parts. Under this proposal, the finding that an arrangement or several arrangements are “not genuine” would be based ultimately on whether the steps were put into place for valid commercial reasons that reflect the economic reality.
Modification corporate income tax installment payments by large companies
For the financial years opened between 1 January 2019 and 31 December 2019, the last installment due by “large companies” would have to cover the difference between:
Implementation of the EU directive, settlement of tax disputes within EU
The draft Finance Bill includes an article that would transpose into French law an EU Directive regarding the settlement of tax disputes within the EU in instances when double taxation arises as a consequence of the application of income tax treaties between EU Member States. The proposal aims to provide for a relief mechanism—the creation of consultative commissions that could issue arbitration decisions—that would apply when discussions between tax administrations fail to resolve the double taxation issue. The tax authorities of the countries involved could decide not to follow the commission’s arbitration decision only to the extent that they reach an agreement to settle the issue. The taxpayer then would have to be “notified” of the final decision, at which point, the taxpayer could decide not accept it, in which instance, the procedure would be closed.
Certain other measures, already passed last year, are scheduled to be fully effective beginning in 2019—these include the progressive reduction of the corporate income tax rate and the transformation of the CICE (a tax credit on compensation paid to the lowest wage earners) into a reduction of social charges.
Modification of the “exit tax” regime
The existing provision referred to as the “exit tax” allows France to impose tax on the unrealized capital gains on shares and certain financial instruments owned by individual taxpayers who leave France if afterwards the individuals sell the shares or financial instruments before the end of a time period currently set at 15 years. Under the proposal, the time period during which the exit tax could apply would be reduced to two years.
Furthermore, taxpayers with such unrealized gains would no longer be required to provide the French tax authorities with financial guarantees if they leave France for another EU Member State, for a Member State of the European Economic Area, or for a state or territory with which France has concluded a tax treaty that includes an administrative assistance clause regarding the recovery of taxes.
These modifications would apply to individuals transferring their fiscal domicile outside France as from 1 January 2019. The current regime would still apply to individuals having left France before 2019.
Other proposals affecting individual taxpayers include the:
For more information, contact a tax professional with Fidal* in France or with KPMG in the United States:
Olivier Ferrari | +33 1 55 68 14 76 | firstname.lastname@example.org
Gilles Galinier-Warrain | +33 1 55 68 16 54 | email@example.com
Laurent Leclercq | +33 1 55 68 16 42 | firstname.lastname@example.org
Bruno Bacrot | +33 1 47 38 89 96 | email@example.com
Patrick Seroin | +1 (212) 954-2523 | firstname.lastname@example.org
* Fidal is a French law firm that is independent from KPMG and its member firms.
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