9 February 2015
Practice Group(s):
Tax
French Finance Act for 2015 and Amending
Finance Act for 2014: Key Tax Measures for
Corporations
By Bertrand Dussert
The French Finance Act for 2015 and Amending Finance Act for 2014 were enacted on
December 30, 2014 (the “Acts”). The Acts introduce a new penalty for failure to comply
with French transfer pricing requirements, and a withholding tax exemption in the event
of a transfer pricing assessment, subject to specific requirements. Under the new
legislation, the French fiscal unity regime is now available to French sister companies
(“horizontal tax consolidation”). The Acts contain new conditions to benefit from the
parent-subsidiary regime applicable to dividend distributions. Finally, gains arising from
the buyback of shares will always be subject to capital gains tax, and the transfer tax on
sales of shares in real estate companies is (again) amended.
The key tax measures of the Acts are as follows:
• Taxpayers who fail to provide to the French Revenue sufficient transfer pricing
documentation will be subject to a penalty equal to the higher of (i) €10,000, (ii) 0.5%
of the amount of the transactions for which only partial or incomplete documentation
has been provided to the French Revenue and (iii) 5% of the transfer pricing
assessment1. Previously, the penalty could not be lower than €10,000 and could be
up to 5% of the transfer pricing assessment.
• French companies which are 95% owned by a common non-French company located
in a member state of the EU or EEA (Iceland, Liechtenstein or Norway) will be allowed
to form a tax consolidated group in France 2. It must be stressed that only one of the
eligible French companies can be the head of the consolidated group (the non-French
parent company cannot elect to be the head of the tax consolidated group).
• The participation exemption regime will no longer apply to dividend distributions to the
extent that such distributed profits are deductible from the taxable income of the
distributing company 3 (anti-hybrid provision).
• Shares transferred to a French trust-like entity (fiducie) 4 will, in certain circumstances,
be eligible for the participation exemption regime at settlor’s level on the dividends
1
Applying to tax audits for which a tax audit notification has been sent on or after January 1,
2015.
2
Applicable to financial years ending on or after December 31, 2014. For prior financial years,
French companies that have not been able to form a tax consolidated group could claim a
refund on the basis of the ECJ decision issued on June 12, 2014 in which the Court ruled that
Dutch legislation breached the freedom of establishment for not allowing a consolidation
between two Dutch companies held by a company established in the EU or EEA.
3
Applicable to financial years commencing on or after January 1, 2015. The French Revenue
will have to clarify if this new provision applies to distributions decided in 2014 but paid in
2015.
4
The fiducie can be defined as the French version of Anglo-Saxon trusts where settlors
(constituants) transfer rights or assets to trustees (fiduciaires) with a view to managing them
for the benefit of beneficiaries (bénéficiaires).
French Finance Act for 2015 and Amending Finance Act
for 2014: Key Tax Measures for Corporations
received (the latter, under French tax law, remains taxable on the fiducie’s income)
Such transfer will also be disregarded in determining whether the 95% ownership
requirement is still met for the tax consolidation regime at settlor’s level (as a
reminder, the tax consolidation regime is only available to affiliated companies
connected by 95% ownership links)5.
• Gains arising from the buyback of shares will be subject to capital gains tax6.
Previously, gains arising from the buyback of shares were taxed, if certain conditions
were met, either as dividends or as capital gains. Such gains will no longer be
deemed to be distributed income and therefore will no longer (i) benefit from the
participation exemption regime; (ii) be subject to the specific 3% contribution on
distributed income; and (iii) be subject to French withholding taxes where the
shareholder is a non-French resident. However, unless a tax treaty provides
otherwise, capital gains could be subject to a specific levy of (i) 33.33% - applicable
where a non-French company disposes of shares in a company holding mainly
French real estate properties (reduced to 19% - for listed shares - if the transferor
company is located in a member state of the EEA) or (ii) 45% - applicable where a
non-French tax resident disposes of shares in a French company in which it held more
than 25% of the profit rights of the French company at any time during the five years
prior the disposal or (iii) 75% - in any case - where the beneficiary is located in a NonCooperative State or Territory (“NCST”). 7
• In the event of a transfer pricing assessment (or payment made to a company located
in a tax haven), the amount assessed (or paid to the aforementioned company) is
generally deemed to be distributed income subject to French withholding tax.
Taxpayers will be able to eliminate this withholding tax if (i) they accept the
assessments and penalties, (ii) obtain a refund from the foreign related party for the
assessed amount, (iii) make the request before the withholding tax bill is issued, and
(iv) the beneficiary of the deemed distribution is not located in a NCST 8.
• Transfer tax (at a rate of 5%) on sales of shares in (non-publicly traded) real estate
companies is payable on the amount of the sale price (or on the fair market value, if
greater) 9. The transfer tax was previously assessed on the fair market value of (i) the
immovable assets after subtracting the amount of debt taken out to purchase such
immovable assets plus (ii) all others assets of the company.
• Tax residents of EU and EEA member states (except Lichtenstein) will no longer be
required to appoint a tax representative in France where those non-French residents
(i) are subject to French corporate income tax without having any permanent
establishment in France 10, or (ii) sell immovable property located in France (or shares
in real estate companies) 11.
5
Applicable to financial years ending on or after December 31, 2014.
Applicable to buybacks of shares effectedon or after January 1, 2015.
7
The current list of NCSTs - which is published every year - includes eight States: Botswana,
the British Virgin Islands, Brunei, Guatemala, Marshall Islands, Montserrat, Nauru, and Niue.
8
Applicable from December 31, 2014.
9
Applicable to capital gains arising from disposal of shares made on or? after December 31,
2014.
10
Applicable to financial years ending on or after December 31, 2014.
11
Applicable to capital gains arising from disposals made on or? after January 1, 2015.
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French Finance Act for 2015 and Amending Finance Act
for 2014: Key Tax Measures for Corporations
Author:
Bertrand Dussert
Bertrand.Dussert@klgates.com
+33 (0)1 58 44 15 28
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