France: Finance Bill for 2021, tax measures announced
France: Finance Bill for 2021, tax measures announced
The French government on 28 September 2020 released a draft of the Finance Bill for 2021 that proposes tax measures.
Besides the expected measures regarding production taxes, there are new proposals in the Finance Bill for 2021 that are intended to support French businesses.
- One measure aims at “tax neutralizing” capital gains arising from revaluations of assets; another aims at postponing the taxation of capital gains realized on real estate assets in sale and leaseback transactions.
- Regarding the research and development (R&D) tax credit, outsourced expenditures would be harmonized.
- Value added tax (VAT) measures are also foreseen (including clarification of applicable rules concerning complex transactions, deferral of the effective date of the EU Directive on distance or remote sales of goods, and the creation of a VAT group regime as from 1 January 2023). A separate summary of the VAT proposals will be provided shortly.
The Finance Bill for 2021 is expected to be subject to discussion and debate by the Parliament during the fall, with enactment anticipated by mid December 2020.
Production taxes—expected measures
A permanent reduction of both the territorial economic contribution (contribution économique territoriale—CET) and the company property tax (taxe foncière) is proposed.
Companies engaged in a business in France are subject to CET, which is composed of two different taxes:
- The land contribution for enterprises (Cotisation foncière des entreprises—CFE)
- The contribution on added value of enterprises (Cotisation sur la valeur ajoutée des entreprises—CVAE)
The amount of the property tax on “built properties” (taxe foncière sur les propriétés bâties) would be reduced for industrial facilities, and there would be partial relief from the CET for all companies.
Other proposed changes include:
- A reduction of the rate of the CVAE from the current rate of 1.5% to 0.75%.
- The taxable basis of the property tax on built properties of industrial facilities would be halved (divided by two). As a collateral benefit, the CFE (land contribution for enterprises) would be reduced, since it is assessed on the same tax basis.
- The CET is currently capped at 3% of the added value of the taxpayer; it is proposed that this cap would be reduced to 2% with the expectation that this would “neutralize” the upper limit on the CET (given the proposed decrease of the CVAE and of the property taxes on industrial facilities).
The government expects that companies in industrial and retail sectors would be the main beneficiaries of the proposed tax relief.
R&D tax credit—harmonization of outsourced expenditures
Companies that incur R&D expenses can benefit from a tax credit that can be offset against their corporate income tax liability. The R&D tax credit is 30% of the expenses regarding operations of R&D up to €100 million, and 5% for the excess.
Qualifying expenditures include inter alia the depreciation of fixed assets allocated to R&D, staff expenses, and outsourced expenses. Regarding outsourced expenses, the qualifying expenses incurred on R&D activities outsourced to public bodies are doubled (multiplied by two) for the computation of the R&D tax credit of the company that ordered them.
Under the Finance Bill for 2021, such expenses incurred as from 1 January 2022 would no longer be doubled. As a consequence, operations outsourced to public bodies would be treated in the same way as those that are outsourced to third-party private bodies.
Revaluation of assets—election for temporary tax exemption
Tangible and financial assets can be revaluated under the conditions provided by the French commercial code. In such instances, the difference of valuation is immediately taxed as a capital gain or loss.
The Finance Bill for 2021 would allow a company that, for the first time, decides to revalue all of its tangible and financial assets to elect for a deferral in the corresponding capital gain taxation. This deferral would apply assuming the following cumulative conditions are met:
- The company has to compute the capital gain or loss realized on the further transfer of non-depreciable fixed assets based on their fair market value.
- The company must make a book-to-tax adjustment regarding the depreciable fixed assets:
- For a 15-year period regarding constructions, plantations, and modifications of depreciable lands
- For a five-year period regarding other fixed assets
This measure would be optional and applicable to the first revaluation recorded at the end of a financial year ending between 31 December 2020 and 31 December 2022.
Sale and leaseback of real estate assets—“spreading” of the capital gain
A sale-and-leaseback transaction involving a real estate asset is identified as a situation when a company sells a real estate asset to a leasing company and then leases the asset back for a long-term lease period. As a consequence, the company continues to use the real estate asset but no longer owns it.
Under the proposal, capital gains realized from the transfer of a real estate asset in such transactions would be spread into equal parts throughout the duration of the sale and leaseback, for a maximum of 15 years. Only real estate used for commercial and industrial purposes would be eligible for this treatment.
This measure would only concern the sale of real estate assets following a sale agreement closed between 28 September 2020 and 31 December 2022.
Read an October 2020 report [PDF 139 KB] prepared by the KPMG member firm in France.
For more information, contact a tax professional with KPMG Avocats in France:
Marie-Pierre Hôo | + 33 (0) 1 55 68 49 09 | firstname.lastname@example.org
Patrick Seroin Joly | + 33 (0) 1 55 68 48 02 | email@example.com
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