The high chamber of the French Parliament (“Sénat”) on 23 November 2018 voted to limit the effects of a lower interest limitation to the net interest expenses corresponding to the debt above a debt-to-equity ratio.
The French government in September 2018 unveiled the main tax provisions of the draft Finance Bill for 2019 that included certain provisions of the EU anti-tax-avoidance directive (ATAD), in particular regarding the deductibility of net financial expenses. Read TaxNewsFlash
According to the new proposed limitation (which slightly differs from the ATAD’s minimum standard) the deductibility of net financial charges would be limited to the greater of:
However, if the ratio of related-party debt-to-equity of the company (or tax group) exceeds a 1.5:1 ratio, the 30% limitation would be reduced to €1 million or 10% of the tax EBITDA.
The Sénat on 23 November 2018 voted on an amendment, introduced by the government, that would limit the effects of the lower 10% (or €1 million) limitation to the net interest expenses corresponding to the debt above the 1.5:1 debt to equity ratio.
If the amendment is finally adopted and included in the enacted legislation (enactment of the French Finance Law for 2019 is expected in late December 2018), the new capping mechanism would provide for the simultaneous application of the following limitations:
Non-deductible interest expenses, in light of this new limitation, would be eligible for carryforward without a time limitation:
For more information, contact a tax professional with Fidal* in France or with the KPMG member firm in France:
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 | + 33 (0) 1 5568 4802 | firstname.lastname@example.org
* Fidal is a French law firm that is independent from KPMG and its member firms.
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