Finance Act for 2016 and Amended finance Act for 2015 Company taxation

FINANCE ACT FOR 2016

The Finance Act for 2016 was adopted by the French Parliament on December 17th, 2015 and was published in the French Official Journal on December 30th, 2015.

By way of decision n°2015-725 DC of December 29th, 2015, the Constitutional Council censured several provisions of the law (specifically taxation of “intra-day” transactions).

Combating tax evasion

Introduction of a Country by Country Transfer Pricing Reporting (CbCR) requirement

• For fiscal years beginning on or after January 1st, 2016, a country by country reporting requirement is established in order to implement Action 13 of the BEPS action plan adopted by the OECD.
• Fall into the scope of the CbCR requirement companies established in France which
  
  • draw up consolidated accounts, and
  • realize an annual consolidated turnover of at least €750 million, and
  • own or control, directly or indirectly, one or several legal entities established out of France or have branches abroad and
  • which are not owned by one or several legal entities situated in France and subject to such CbCR requirement, or established outside France and subject to a similar CbCR requirement pursuant to foreign legislation.
• Country by Country Transfer Pricing Reporting must be subscribed in dematerialized form within twelve months of the end of the financial year, must indicate the country by country apportionment of group profits as well as economic, accounting and tax aggregates, and finally information on the location and the activity of the group entities. The information to be communicated shall be specified by a decree to be published.
• The absence of filing will result in a fine up to €100,000.

Transfer Pricing

Dematerialization of 2257-SD form (Transfer Pricing)

• Forms relating to Transfer Pricing policy (2257-SD form), to be filed as of January 1st, 2016, will now have to be transmitted electronically.
• Furthermore, the 2257-SD form for each company member of a tax consolidated group must be filed by the tax consolidating company of the group.
• Finally, in compliance with French administration doctrine, companies are now required to identify the jurisdictions and territories in which are established members of the group which own intangible assets or with which intra-group transactions are conducted.

VAT

Distance selling

• The threshold beyond which VAT is payable by EU sellers for distance selling of goods to France is lowered from €100,000 to €35,000.

Miscellaneous tax measures

Elimination of the exceptional contribution on corporate income tax

• The exceptional contribution on corporate tax of 10,7% provided for in Article 235 ter ZAA of the French tax code is not extended.
• As a reminder, this temporary contribution is retained for the fiscal years ended December 30th, 2016.
• Companies which have a calendar year-end will have to pay this exceptional contribution for the last time for fiscal year 2015.

Extension of exceptional depreciation mechanism

• Exceptional depreciation on industrial investments enabling companies to depreciate assets to 140% of their value is extended to heavy trucks and toolings used for transport activities in particular concerning cables and lifts.

Dematerialization of the charter of rights and obligations of the audited taxpayer

• For notice of a tax inspection addressed or delivered on or after January 1st, 2016, the charter of rights and obligations of the audited taxpayer will henceforth be dematerialized and made available on tax administration website.

Decrease of the maximum allowable severance benefits deduction 

• For listed companies, the deduction from the taxable profits of severance benefits of presidents, general managers or assistant general managers and board members, is now limited to three times the annual social security ceiling, for fiscal years beginning from November 1st, 2015 (i.e. €114,120 for 2015 and €115,848 for 2016).

AMENDING FINANCE LAW FOR 2015

The Amending Finance law for 2015 was adopted by the French Parliament on December 17th, 2015 and was published in the French Official Journal on December 30th, 2015.

By way of decision n°2015-726 DC of December 29th, 2015, the Constitutional Council (Conseil Constitutionnel) censured several provisions of the law (such as some provisions relating to the taxation of the creation of offices and commercial premises in Ile-de-France).

Tax consolidation regime

Adjustments of French law following the Court’s “Steria” decision

• The French tax consolidation regime is amended to bring French law into compliance with European law.  
• For tax years beginning on or after January 1st, 2016, the neutralization mechanism of the portion of costs and expenses on distributions received within a tax consolidated group is removed.
• In return, the rate of the portion of costs and expenses is lowered from 5% to 1% in the following cases:
  
  • dividend distributions within a tax consolidated group or;
  • dividend distributions received by a company member of a tax consolidated group and paid by another company in the group or by a company located in the European Union which is subject to a similar corporate income tax, provided that the company meets the conditions which would enable it to be a member of the tax consolidated group if the company were located in France.
• This measure applies from fiscal years beginning from January 1st, 2016.

Adjustments regarding distributions

• The tax regime concerning distributions is adjusted in order to comply with the European Union and constitutional legislation.

Parent /Subsidiary regime – De minimis clause

• A new anti-abuse de minimis clause provided in the Council directive EU 2015/121 of January 27th, 2015 has been transposed into French law.
• As a reminder, this stated that the benefits of said Directive could not apply “to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.”
• It is added that “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.”

Parent /Subsidiary regime – Other adjustments

• Various adjustments regarding the Parent/Subsidiary regime have been adopted for fiscal years ending from December 31st, 2015, notably:
  
  • the domestic participation exemption is extended to apply to bare ownership of shares (i.e. ownership without usufruct);
  • reinstatement of several specific exemption provisions regarding distributions;
  • a “safe harbor” clause is introduced to allow the participation exemption to apply to dividends received from companies located in a NCST, provided the French company could demonstrate that the distributing entity carries on real activities and that the location of the entity is not intended to, or does not result in, the entity benefiting from a favorable tax regime in the NCST.

Adjustments on the European withholding tax exemption

• Adjustments on the European withholding tax exemption have been adopted. They apply from fiscal year ended as from December 31th, 2015, in particular:
  
  • extension of the withholding tax exemption provided for in article 119 ter of the French tax code to shares held in bare ownership;
  • extension of the withholding tax exemption to dividends paid by a French company to a company the effective management of which is located in the European economic area;
  • exclusion of withholding tax provided for in article 119 ter of the French tax code when the European parent company, holding 5% to 10% of its subsidiaries, cannot set off the withholding tax locally (“Denkavit” doctrine).

Exemption of withholding tax on dividends distributed by companies in a loss-making position and in liquidation (new Article 119 quinquies of the French tax code)

• The withholding tax provided by article 119 bis 2 of the French tax code is not applicable when the beneficiary of the distribution:
  
  • has its effective management center in a member state of the European Union or in a country or territory which has concluded a convention with France on administrative assistance to combat tax evasion and avoidance, and is subject to a similar corporate tax in said country or territory;
  • is in a loss-making position;
  • and is subject, at the time of the distribution, to a judicial liquidation procedure or a comparable procedure.
• This measure applies to incomes received from January 1st, 2016.

Research & development tax credit and innovation tax credit

An advisory committee for research tax credit and innovation tax credit has been created

• An advisory committee for research tax credit and innovation tax credit has been created, with the intention of forming a conciliation entity intervening before the end of a tax audit in case of disagreements on the eligibility of expenditures incurred by a company to benefit from a research and development tax credit or an innovation tax credit.

VAT

Denial of the right to deduct in the event of VAT “carrousel” fraud with regard to supply of services

• Exclusion of the right to deduct VAT for the customer in case of VAT fraud (“Carrousel” fraud) on supply of goods, provided for in article 272,3 of the French tax code is extended to all supply of services.
• To ensure the payment of VAT, the customer can be made liable for VAT not paid by the supplier, if the buyer knew or could not have been unaware that fraud was involved.
• This solidarity mechanism, provided for in article 283,4 bis of the French tax code, applies to supply of goods and supply of services. The denial of the right to deduct VAT and the solidarity mechanism cannot be cumulated for supply of goods. From now, the non-aggregation rule applies also to supply of services.

Extension of the procedure for blatant fraud to supplies of services

• Given the extension of exclusion of the right to deduct VAT to the customer in the event of VAT fraud, the procedure for blatant fraud is also extended to supply of services, in case of invoicing that does not correspond to an effective supply of services.
• These measures apply from December 31st, 2015.

Miscellaneous tax measures

Taxation relating to creation of offices and commercial premises in Ile-de-France is reformed

• The creation fee for establishing offices, commercial premises and storage premises in Ile-de-France is renamed a “tax”.
• The new measure maintains the same scope of application but introduces a new pricing application which depends on geographical division into four tariff zones (the tariff applicable per square meter in Paris and the Haut-de-Seine department is increased).

Creation of an additional tax on sales of offices and other premises in Ile-de-France

• An additional tax on registration fees or land registration taxes payable on sales of offices, commercial premises and storage premises completed over more than five years previously is created for the benefit of the Ile-de-France region. The rate of this additional tax is set at 0.6%.