The corporate tax measures in the Finance Law for 2019 (ref 2018-1317 of 28 December 2018 and promulgated on 30 December 2018) generally have an effective date of 1 January 2019 (or are effective as from financial years (FYs) opened as from 1 January 2019).
Among the developments affecting multinational companies (and subject to clarifications expected from the French tax authorities) are the following items.
The Finance Law for 2019 introduced the following changes to the tax consolidation regime in an effort to provide that the French regime complies with EU regulations (and thus to avoid potentially new EU litigation):
There is certain relief from the effects of the corporate income tax treatment of dividends distributed to a French parent company as follows:
The Finance Law for 2019 implements Article 4 of the EU Anti-Tax Avoidance Directive (ATAD 1) in connection with the deduction of financial expenses, and thus aims at simplifying the existing financial expenses deduction restrictions under French law.
The new set of limitation rules replaces the general 25% interest-capping mechanism and the existing thin capitalization rules (both having been repealed):
The other existing financial expenses deduction restriction rules remain unchanged, such as:
The French patent box regime has been brought in compliance with the OECD and EU “nexus” approach derived from Action 5 of the OECD’s base erosion and profit shifting (BEPS) project. As a consequence, this optional regime now only applies to the proceeds from the licensing or the sale of patents or assimilated eligible industrial property rights (“IP rights”) if the research and development (R&D) operations leading to the development of such IP rights have been conducted in France by the taxpayer (or tax consolidation group) or have been subcontracted to unrelated entities.
Similarly (although not identically) to the German mechanism adopted as from 1 January 2018, France has now introduced a limitation of the deductibility of royalties paid to a related ultimate beneficiary that is not a resident of an EU or an EEA country and which benefits from a local tax regime listed as harmful by the OECD and offering a local effective tax rate below 25%.
The non-deductible portion of the royalties is computed with a ratio equal to this formula: (25% less the effective tax rate) divided by 25%.
A general anti-abuse regulation (GAAR) is introduced into French law in line with the ATAD 1. According to this provision, an arrangement or series of arrangements that were implemented in order to obtain (either as the main objective or as one of its main objectives) a tax advantage that is “not genuine” after taking into account all pertinent facts and circumstances are to be disregarded when computing the corporate tax basis of a French taxpayer.
The finding that an arrangement or several arrangements are “not genuine” will be based ultimately on whether such arrangement or series of arrangements were put into place for valid commercial reasons that reflect their underlying economic reality.
For financial years opened as from 1 January 2019, the ultimate or last corporate income tax installment due by the companies with revenue exceeding €250 million will have to be paid up to an amount totaling (when taking into account the other corporate income tax installments already paid for the said financial year):
The Finance Law for 2019 transposes into French law the EU directive regarding the settlement of tax disputes between EU Member States resulting from the application of international tax treaties.
A relief mechanism is provided according to which consultative commissions could issue (non-binding) 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 enacted last year, are scheduled to be fully effective beginning in 2019, although the French corporate income tax rate for 2019 is likely to remain at the level of the 2018 rate (34.43% including the 3.3% surtax) for multinationals. These measures include:
Reduction of the standard corporate income tax rate
The French standard corporate income tax rate is progressively reduced to:
The 3.3% surtax computed on the standard corporate income tax charge (after deduction of a lump-sum amount of €763,000) remains unaffected. Accordingly, the revised corporate income tax rates reflecting the surtax are:
Competitiveness and employment tax credit (CICE)
The CICE (crédit d’impôt pour la compétivité et l’emploi) is a (refundable) tax credit based on wages paid by companies that did not exceed 2.5 times the minimum wage (so-called SMIC). For calendar year 2018, it amounted to 6% of the subject salaries.
Since 1 January 2019, the CICE is replaced by a permanent 6% employer social security contributions reduction applicable to the same eligible salaries.
For more information, contact a tax professional with the KPMG member firm in France (KPMG Avocats):
Mustapha Oussedrat | + 33 (0) 1 55 68 48 01 | email@example.com
Patrick Seroin | + 33 (0) 1 55 68 48 02 | firstname.lastname@example.org
Sophie Fournier-Dedoyard | + 33 (0) 1 55 68 48 24 | email@example.com
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