Following the announcement of exceptional tax and social security measures for businesses and the self-employed, as detailed in our previous Tax Alert (deferrals of payment, partial remittance of direct taxes and accelerated reimbursement of tax credits), the government has recently indicated that these could be called into question if the beneficiary companies distribute dividends or proceed with share buyback in 2020.
Furthermore, the emergency law of 23 March 2020 allows the government to legislate by ordinance: the first 25 ordinances were published on 26 March 2020. Among these, Ordinance No. 2020-306 provides for an extension of the time limits expired during the period of health emergency and is applicable particularly in tax matters.
Companies benefiting from deferrals of payment and exceptional tax or social rebates will have to commit to abstaining from distributing dividends or proceeding with share buybacks in 2020.
Which large corporations are concerned?
Companies or groups that employ at least 5,000 employees or have achieved consolidated turnover of more than 1.5 billion euros in France during the last financial year (these thresholds are assessed globally for groups). The commitment should concern all the French entities of a group, even if only some of them have benefited from financial help.
Consequences in case of a distribution or share buyback decided before the announcement
Distributions decided before 27 March by the competent body, and share buybacks carried out before this date are not concerned by this measure.
Please note that intra-group distributions which aim to financially support a French company are possible without jeopardising the aid request. Companies that have a legal obligation to distribute dividends should not affected by this measure.
What are the consequences if companies do not respect their commitment?
Companies that do not respect their commitment will have to pay the deferred tax or social security contributions, plus late penalties (5% of top-up payment and 0.2% per month of delay).
The French government has adopted several ordinances, including Ordinance No. 2020-306 of 25 March 2020, concerning the extension of deadlines expired during the health emergency period (currently set from 12 March to 24 May 2020) and to the adaptation of procedures during this same period, which apply in particular to tax matters.
Extension of deadlines expired during the state of health emergency
Article 2 of the ordinance provides for the extension of time limits that should have expired during the health emergency for "any act, remedy, legal action, formality, registration, declaration, notification or publication prescribed by law or regulation on pain of nullity, sanction, lapse, foreclosure, prescription, unenforceability, inadmissibility, expiration, automatic withdrawal, application of a special rule, nullity or forfeiture of any right”, with exceptions listed.
These deadlines will expire at the end of the legally stipulated period, which will start to run from one month after the end of this period, within the limit of two months.
This extension shall apply in particular to the time limits applicable to administrative and judicial proceedings.
For example, if the two-month period for filling an application to the Administrative Court should expire on 15 March 2020, it will be automatically extended until August 24 (taking into account a new two-month period, starting one month after the currently scheduled end of health emergency on 24 May 2020).
Suspension of time limits for tax audit procedures
The ordinance also provides for the suspension, between 12 March and 24 June 2020, of the deadlines provided in the tax procedures book, without a decision to that effect from the Tax Administration being necessary.
Extension of the limitation period in favour of tax authorities
The ordinance provides for an extension of the limitation period in favour of tax authorities, applicable for fiscal years whose prescription would have been acquired as of 31 December 2020. The duration of this extension is equal to that between 12 March 2020 and one month after the end of the health emergency (i.e. until mid-April 2021, taking into account the date end of health emergency currently scheduled).
Extension of Time limits for tax returns
The tax authorities have announced a two-week delay in the reporting of income tax and property wealth tax. This will start from 20 April and will expire for online declarations from 4 to 11 June (depending on the department of residence) and 12 June for paper declarations.
In addition, companies will be allowed to file their income tax return for the FY ending 31 December 2019, by 31 May 2020.
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