France Tax Alert - Companies - January 2013

10 January 2013

Laurence Clot, Vaea Pery, Rébecca Feliman

Finance Act for 2013 and 3rd Amended Finance Act for 2012 / Companies taxation


Disallowance of part of financial charges (Art. 23 FA)

For interest exceeding 3 million euros , a portion of costs set at the rate of 15% regarding financial expenses must be reinstated for the tax year ending 31/12/2012 and for 2013; this portion of costs will be increased to 25% for the tax year opening 01/01/2014.

In an effort to protect small and medium-sized businesses, the measure will not apply where the overall amount of net financial charges is lower than 3 million euros.

For tax groups, this ceiling will apply only to the parent company and to financial charges arising from operations made with “persons” that are not members of the group.

Further details may be provided by tax authorities as to the linking up with other mechanisms for financial expenses reinstatement and regarding the notion of “debt”, in order to know whether commercial liabilities and supplier liabilities have to be taken into account for the calculation.

Hardening of the use of tax losses carried forward for companies subject to corporate income tax (CIT) (Art. 24 FA)

The amount of tax losses which can be offset against the taxable income of a given financial year has been reduced to 50% (instead of 60%) of the taxable income exceeding 1 million Euros.

This measure has been softened in case of waiver of debt granted to loss-making companies when they are subject to an insolvency procedure. A combination mechanism with tax group consolidation is pending. These new measures apply from financial years ending on 31 December 2012.

Calculation of the proportionate share of costs and charges (“quote-part de frais et charges – QPFC”) on capital gains from share transfers (Art. 22 FA)

For the determination of the tax result for financial years ending on 31 December 2012, the QPFC will be calculated at the rate of 12% on the gross income on capital gains, without any possibility to offset capital losses of the same nature realized during the same financial year, increasing by doubly therefore, the said QPFC.

Exceptional contribution on corporate income tax (Art. 30 FA)

The exceptional contribution on CIT introduced by the Amended Finance Act for 2011 has been renewed for a further two years until financial year ending on 30 December 2015.

Modification of the instalment regime of CIT for large companies (Art. 26 FA)

The threshold of turnover triggering payment of the last instalment has been reduced to 250 million euros (instead of the 500 million euros previously). The additional amount payable has been increased to:

- 75% (instead of 66%) for companies with a turnover of between 250 million euros and 1 billion euros;
- 85% (instead of 80%) for companies with a turnover of between 1 and 5 billion euros;
- 95% (instead of 90%) for companies with a turnover exceeding 5 billion euros.

This measure will enter into force as from 1st January 2013.

Transfer abroad of head office or establishment (Art. 30 AFA)

In the case of a transfer of head office or establishment to another member state of the EU (or to a Member State of the European Economic Area which has concluded a mutual administrative assistance agreement and a mutual assistance agreement for the purpose of recovery), taxpayers will now have the choice between immediate taxation or taxation over a period of 5 years on unrealized capital gains or deferred capital gains relating to the transferred assets.

These new rules apply to transfers completed on or after 14 November 2012.

Repurchase of written down debts incorporated into the capital of the debtor company (Art. 24 FA)

For transactions made during financial years ended on 31 December 2012, the virtual profit recorded by the contributor where there is an increase of capital by the conversion of liquid and payable debt will be neutralised, subject to the acquisition of the written down debt from a third-party creditor. Thus, the taxable profit will be determined by taking into account the fair market value of the shares received in consideration.

The applicability of this measure is subject to particular conditions and leads to several restrictions in case of disposal of shares in a delay of two years.

Distributions by mutual funds (FCP) (Art. 20 AFA)

Capital gains made by a FCP will now be taxable as from their distribution by the fund (no deferred taxation). The shareholder is taxed at the standard rate on distribution (it is excluded from the tax regime of long-term capital gains).

Taxation of amounts registered in the capitalization reserve of insurance companies (Art. 25 FA)

The Finance Bill for 2010 created an exceptional contribution of 10% on the capitalization reserve of insurance companies. An additional contribution of 7% is introduced on the same basis, or if lower, on the amount of capitalization reserve recorded at the opening of the financial year then ongoing at the date of publication of the law. This new tax is not tax deductible.

The cumulative amount of the exceptional tax of 10% and of the additional tax of 7% will be capped to 5% of the net equity, capitalization reserve included.

This contribution is due at the end of the ongoing financial year as from 31 December 2012.

Intermediaries of foreign insurers (Art. 64 AFA)

Article 1002 of the French Tax Code has been removed. This article imposed specific declarative obligations on brokers and other intermediaries, such as keeping a record of mediation transactions when they are working for foreign insurers established in the European Economic Area and operating in France as free service providers.

Tax credit for competitiveness and employment (Art. 66 AFA)

This tax credit will be based on the gross amount of remunerations not exceeding 2.5 times the French minimum wage (SMIC), paid to employees during the calendar year at the rate of 4% in 2013 and 6% as from 2014.

It will be offset against tax liabilities payable during the three next years. Any remaining or unused credit after a period of three years will be refunded to the taxpayer. Certain companies may obtain the immediate refund of the tax credit.

The purpose of tax credit is the funding of the competitiveness of companies and companies are required to record utilization of the tax credit in accordance with this aim.

Modification of the research and development (R&D) tax credit (Art. 71 FA)

A particular R&D tax credit regime applies to SME’s innovation expenditures (rate of 20%, the limit of expenses amounts to 400.000 €).

For most companies, increased rates which applied to the two first years of operation are cancelled.

The procedure of tax ruling (tacit agreement subject to eligibility) is adjusted.

These measures apply to expenses incurred as from 1st January 2013.

Tax provision for press companies (Art. 27 FA)

The specific provision in favour of press companies publishing daily newspapers, or periodicals of a maximum publication period of one month or certain online press services, is renewed for 1 year, until 31 December 2013.

Tax reduction for capital subscription to press companies (Art. 29 FA)

The tax reduction equal to 25% of the amount of subscription in cash to the capital of companies publishing political and general news daily newspapers or periodicals of a maximum publication period of one month is renewed for 1 year, until 31 December 2013.

Tax credits cinema and audiovisual sector (Art. 72 FA)

The tax credit in favour of the cinema and the audiovisual sector has been increased. The tax credit in favour of the production of foreign movies has increased and been renewed for 4 years and, until 31 December 2016.

Modified VAT rate (Art. 68 AFA)

As from 1 January 2014, the VAT rate of 5,5%, 7% and 19,6% will be replaced respectively by the rate of 5%, 10% and 20%.

Transposition of EU Directive 2010/45/EU dated 13 July 2010 relative to the EU VAT system and invoicing (Art. 62 AFA)

As from 1st January 2013, the territorial scope of the French rules of invoicing and measures regarding the electronic invoicing procedure are modified.

Compliance with EU law (Art. 64 AFA)

Deductibility of VAT on importation VAT on importation is deductible whether or not the tax has already been paid.

Tax representative Taxable persons established outside EU but in a country which has implemented a legal instrument of mutual assistance with a similar scope to those existing at Community level are exempted from the obligation to appoint a tax representative for VAT purposes.

VAT Identification Persons subject or legal persons non subject to VAT who make intra- Community acquisitions of goods subject to VAT and who are not identified for VAT purposes, may obtain a VAT identification number. All these measures apply from 31 December 2012.

Audit of computerized accounting (Art. 14 AFA)

The dematerialized presentation of accounting records is mandatory for tax audits started from 1st January 2014 (for companies which carry out computerized accounting). Penalties amounting to 5% of the turnover or of the amount of the declared or enhanced gross revenues per fiscal year or per civil year subject to tax audit, may apply in case of serious breach.

Investigation and search procedures (Art. 11 AFA)

Right of access and seizure The procedure established by Article L.16 B of the French Tax Procedures Book, which scope was, until now, limited to seeking out offences in respect of individual income tax or corporate tax and VAT, is extended to all taxes on turnover. Moreover, the procedure is modified in order to entrench into law the possibility for the tax administration to access information contained in remote servers.

Tax flagrancy procedure – The procedure is extended to taxation periods which are achieved but for which no declarative obligation (individual’s, corporate income tax or VAT) has yet expired, and also to repeated failure to monthly return CA3 forms for VAT purposes.

Judicial procedure of tax investigation – The scope is extended as well.

General Tax on polluting activities (GTPA) “Air” (Art. 18, 19, 20 FA)

Amongst the various measures, the scope of the tax has been extended and the rates have been adjusted. Moreover, the annual indexation of the TGAP tariff will be indexed on the rate of rowth in the consumer price index except tobacco.

 

Contacts

Should you have any additional question please contact:

Laurence ClotAttorney at law Partner, Tax laurence.clot@twobirds.com
Vaea PeryAttorney at law, Tax vaea.pery@twobirds.com
Rébecca Feliman,Attorney at law, Tax rebecca.feliman@twobirds.com
Anton Chyrkov, Attorney at law, Tax anton.chyrkov@twobirds.com
Jenna Scaglia, Attorney at law, Tax jenna.scaglia@twobirds.com

Authors