Finance Act for 2017 and Amended finance Act for 2016 - Companies taxation

FINANCE LAW FOR 2017

The Finance Act for 2017 was adopted by the French Parliament on 20 December 2016 and was published in the French Official Journal on 30 December, 2016.

By way of decision n° 2016-744 DC of 29 December 2016, the Constitutional Council censured two dispositions: the google tax and the reporting obligation of certain purchases as regards to VAT).

Corporate Income Tax (CIT)

Reduction of the corporate tax rate

• A gradual decrease of the corporate income tax rate is put in place. The 28% rate will apply for fiscal years beginning on or after:
  • 1 January 2017: for all small and medium-sized enterprises (SME), up to €75,000 profits;
  • 1 January 2018: for all enterprises up to €500,000 profits;
  • 1 January 2019: for enterprises with a turnover lower than a billion euro on all of the profits earned;
  • 1 January 2020: for all enterprises.

• For fiscal year beginning from 1 January 2019, the reduced rate of CIT (15%) will apply to enterprises with a turnover lower than €50M (previously €7,630,000). The other conditions for application of this rate remain unchanged.

Increase of the last instalment of CIT for large enterprises (turnover > €250M)

• For periods beginning from January 1st, 2017, the amount of the last instalment of CIT is increased as follows:
  • 80% (instead of 75%) for companies with a turnover between €250M and €1M;
  • 90% (instead of 85%) for companies with a turnover between €1bollion and €5billion;
  • 98% (instead of 95%) for companies with a turnover higher to €5billion.

Allocation of tax losses

• The limit on the allocation of carried-forward tax losses is set at €1,000,000 plus 50% of the profits over €1,000,000. This amount is increased by debt write-offs granted to companies in financial difficulty.
• This measure only concerns the companies benefitting from the debt write-off.

Value Added Tax (VAT)

Deductibility of oil

• The deductibility of VAT on oil used as motor fuel is being implemented gradually between 2017 and 2020.

Reduced rate at 5.5%

• Hosting and social support services rendered by hotel residences hosting more than 80% of people in need will see the application of a 5.5% rate. This measure will apply to the services for which the chargeable event occurred as of March 1st, 2017.

Industrial and commercial profits

Removal of the exceptional amortization of software

• Software acquired as of January 1st 2017 will no longer benefit from the exceptional amortization of 12 months.

Sponsoring costs

• In-kind donations as part of sponsoring operations are valued at cost.

Other measures

Increase of tax credit for competitiveness and employment rate

• For compensations paid as of 1 January 2017, the CICE rate increases from 6 to 7%.

Renewal of the young innovative enterprises mechanism

• The tax exemption on income tax and on local taxes will benefit to the young innovative enterprises created until the 31 December 2019.

Financial transaction tax

• As of 1 January 2017, the rate of the financial transaction tax will change from 0.2 to 0.3%.

Instalment on tax on commercial premises (TasCom)

• As of 1 January  2017, firms that are concerned by the TasCom increase will have to pay an instalment of 50% of the due tax (increase included). This instalment will be chargeable on the due tax of the following year.

Reinforcement of the inpatriate scheme

• The specific tax regime of the inpatriates (exemption from income tax on the additional compensation paid to the inpatriates) is extended to the 31st December of the eighth year (instead of the fifth year).
• This regime applies to inpatriates having taken up their post in France as of 6 July 2016.
• Will be exempted from payroll tax, compensations within the scope of the inpatriate scheme.

Tax audit

• The global amount of the penalty in case of opposition to the seizure of documents was capped at €10,000. As of 1 January 2017, it is capped at €50,000.
• On an experimental basis, the government could authorize the tax administration to compensate whistle-blowers relatively to fraud and international tax evasion.

AMENDING FINANCE LAW FOR 2016

The Amending Finance law for 2016 was adopted by the French Parliament on 22 December 2016 and was published in the French Official Journal on 30 December 2016.

By way of decision n°2016-743 DC of 29 December 2016, the Constitutional Council (Conseil Constitutionnel) censured few provisions of the law.

Adjustments regarding distributions

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

Parent / Subsidiary regime – non-voting shares

• The Parent / Subsidiary regime is adjusted in order to comply with the constitutional decision n°2016-553 QPC of 8 July  2016.
• The requirement that the parent company holds at least 5% of voting shares in its subsidiary to benefit from the exemption of distributions is removed.
• This measure applies as from t31 December 2016.

Parent / Subsidiary regime – definition of equity securities

• The automatic link between long term capital gain and the Parent / Subsidiary regime is removed. Consequently, the qualification of equity securities is rejected when the parent company does not hold at least 5% of the subsidiary’s voting shares.
• This measure applies for fiscal years beginning on or after 1 January 2017.

Parent / Subsidiary regime – “safe harbor” clauses

• The long term capital gain and quasi-exemption regimes can apply to the capital gain on sale of shares held since at least 2 years by a company located in a non-cooperative country or territory if the owner company provides proof that the operations of the company located abroad in which the shares are held correspond to real operations having neither the object nor the effect of allowing, for the purpose of tax evasion, their location in such a state or territory.

Compliance with the 3% contribution on distributed revenues

• The 3% contribution on distributed incomes is brought into line with the decision of the Constitutional Court 2016-571 of 30 September 2016.
• The exemption applicable to distributions between tax-integrated companies is extended to distributions from companies which, by choice or by impossibility due to the foreign positioning of the company receiving the distribution, are not members of a tax consolidated group, but respect the condition of holding, directly or indirectly, 95% of the capital.
• This measure applies for distributions paid as from 1 January 2017.

VAT and customs duties

Adjustment regarding the import VAT reverse-charge

• As of December 31st, 2016 the option to reverse-charge the import VAT is replaced by an approval mechanism by the customs authorities for operators filling the following cumulative 4 criteria:
  • Have made 4 importations within territory of the EU during the 12 months preceding the approval request,
  • Have secure computer systems,
  • Justify a financial solvency,
  • Have not committed serious and repeated breaches of tax and customs rules.

Generalization of the electronic payment under the removal credit process

• The threshold of €5,000 for the electronic payment requirement regarding tax and duties (including VAT) by operators using the removal credit process for payment of their duties and taxes due on importation is removed in order to generalize this requirement to all operators using this process.
• These new provisions will enter into force on 1 July 2017.

Repayment of VAT credit

• As of 1 January, 2017, French Tax Authorities can launch an onsite audit in order to statue on  claims for recovery of VAT. Such audit could be carried out by French Tax Authorities where a doubt effects the sincerity of the claim for recovery of VAT.
• Previously, French Tax Authorities could initiate only two procedures: an accounts audit and a documents audit. This new procedure is faster than an accounts audit and more comprehensive than a documents audit.
• The Tax Authorities has also the possibility to launch subsequently an accounts audit if the doubt remains.

Tax audit

New offsite procedure for computerized accounts named "accounting examination"

• A new offsite tax audit procedure is created for computerized accounts.
• Within 15 days of the notice of a tax inspection, the taxpayer is required to send to the French Tax Authorities (FTA) a copy of the accounting files in dematerialized form meeting the standards under Article L 47 A of the French Tax Procedure Code.
• The FTA have a 6-month period from receipt of the copy of the files to send to the taxpayer a tax reassessment notice or to inform him about the absence of reassessment.
• Failure to provide their accounts as part of this accounting examination will expose the taxpayers to a fine of €5,000. The French Tax Authorities may also cancel the accounting examination and undertake an on-site tax audit for the same period.

Reinforcement of conditions for computerized processing during the control of computerized accounts

• When the taxpayer chooses to carry out computer processing by himself, he must give to the FTA, within 15 days of their request, copies of the documents, data and treatments submitted to this control. In this case, the FTA will be able to process the submitted files and oppose them to the taxpayer.
• Failure to transmit their accounts as part of this accounting examination will expose the taxpayers to a fine of €5,000 or, in case of reassessment and if the amount is higher, an increase of 10% of reassessments for failure to provide with documents, data and processing on time and in compliance with the standards.
• These rules apply to tax audits whose notices of a tax inspection are sent as from 1 January 2017.

Extension of the hearing power of DGFIP inspectors in order to reduce international tax evasion

• DGFIP class A and B inspectors are now authorized to hear any person, except the taxpayer himself, who is likely to provide them with information related to their investigation regarding possible breaches of French establishment rules (French tax code, Article 4 B), non-deductibility of export commissions paid to public officials (French tax code, Article 39 (2A) and the suppression of international tax evasion (French tax code, Articles 57, 123A, 155 A, 209, 209 B and 238 A).
• The gathered information shall be communicated, if necessary, to the taxpayer concerned.

Simplification of tax raid procedure

• 3 main changes affect tax raid procedure:
  • The use of a single ordinance even when the sites to be visited fall within different jurisdictions;
  • The simplification of the judicial police officer appointment;
  • The possibility, in case of emergency, of obtaining an authorization issued by the judge to visit another site.

New procedure of on-site audit for requests for VAT refunds

• The FTA have the possibility of going to the site to investigate VAT refunds claims, especially in case of doubt about their sincerity.
• The FTA have a 60-day period from the first intervention on site to make a decision. This decision cannot take place more than 4 months after the notification to the taxpayer of on-site audit.
• Any decision to reject the request for VAT refund must be justified and the failure to reply within the required period is considered as accepted request.
• This new procedure applies for VAT refunds claims filed as from 1 January 2017.

New control procedure for the issuance of tax receipts by non-profit organizations

• The FTA have the possibility of going on-site to check that the amounts on the receipts issued by the beneficiary organizations correspond to those of the gifts and payments actually received and which gave rise to the issue of these documents.
• This new on-site audit procedure applies from 1 January 2018 for donations and payments made from 1 January 2017.

Other measures

Extension of exceptional depreciation mechanism to goods ordered before 15 December 2017

• Exceptional depreciation on industrial investments enabling companies to depreciate assets to 140% of their value is extended to goods ordered before 15 December 2017 with a payment of advances at least equal to 10% of the total amount of the order. The benefit of this exceptional depreciation is subject to the effective purchase of the good within 2 years following the date of order.

Additional contribution to C3S

• An additional contribution to the social solidarity contribution of companies (C3S) is due by companies and institutions existing on 1 January  of the year for which it is due and which turnover in the previous year is of more than €1 billion.
• The rate is set at 0.04% and applies to turnover in the year for which it is due.
• The person liable for the additional contribution shall be obliged to declare and pay before 15 December of the year in respect of which is due an advance payment of 90% of the amount of the contribution based on the estimated turnover of that year according to the terms and penalties provided for C3S.

Dematerialization required for certain declarations

• The annual declaration of salaries, fees and similar income (DADS and DAS 2: French tax code, Article 89 A) and the declaration of movable income (IFU: French tax code, Article 242 ter and 242 ter B) relating to income received after 1 January 2017 must be subscribed by dematerialized means.
• From 2018 and until 31 December 2019 at the latest, declarations of withholding taxes and other contributions movable capital incomes to be borne by the paying and intermediary financial institutions and corresponding payments will progressively become dematerialized (declarations 2777, 2777-D, 2754 in particular).
• The summary declaration of tax reductions and credits 2069-RCI will be mandatory dematerialized as of 2018.
• Payment of the stamp duty due to compulsory appointment of a lawyer before a court of appeal is dematerialized.

Tax on advertising for online video broadcasters called tax "Youtube»

• Operators offering access in France, to audiovisual content, whether for a consideration or free of charge, are subject to a 2% tax based on the sale price or right of access and on the amounts paid by advertisers and sponsors. A 4% rebate (increased to 66% for platforms that put content created by their users online).
• Where audiovisual contents are secondary services or where the main purpose is devoted to information, the tax doesn’t apply.

Relaxation of paper invoices safe-keeping and storage

• Accounting documents, supporting documents and invoices can now be kept within the tax period of 6 years in paper or electronic format according to the choice made by the company.
• The storage requirement of invoices in their original format, in which they were sent, whether paper or electronic, is removed. The paper invoices can be scanned for storage.
• This measure will enter into force on the date of publication of the decree and no later than 31 March 2017.