Parliament approved the French Finance Bill for 2019 at the end of December 2018. You will find hereafter a summary of some of its main provisions. We would be happy to provide you with more detailed information in respect of any of the below.

  1. French Corporate tax
    1.1 Deduction of net financial expenses
    1.2 Modifications of certain tax grouping rules
    1.3 Participation exemption
    1.4 Specific anti-abuse provision
  2. Anti-abuse rules against dividends arbitrage transactions
  3. New abuse of law procedure
  4. IP income
  5. Tax treatment of impatriates


1.1 Deduction of net financial expenses (NFE)

Prior legislation

Under the prior legislation, the NFE were deductible for only 75 percent of their amount (no limitation applied if they amounted to less than €3 million per financial year).
In addition, the deduction of the interest paid to affiliated entities (or deemed affiliated entities) was limited under certain thin capitalization rules.

New legislation

As from 2019, the deduction of the NFE is limited as per the provisions of the EU ATAD Directive as implemented in the French legislation. Simultaneously, the thin capitalization rules are eliminated per se, although certain elements thereof will be still used effectively for anti-abuse purposes.

General deduction limitation

The NFE are deductible to the extent they do not exceed 30 percent of the borrower's EBITDA (they are fully deductible if they do not exceed €3 million per financial year.)

The NFE are defined as any excess of the financial expenses over the financial income.

The financial expenses and financial income include any interest paid/received in respect of any type of indebtedness and claims.

The relevant provisions provide that the financial expenses/income also include inter alia:

  • The amounts paid/received on derivative instruments and hedging contracts in respect of the taxpayer's borrowings;
  • The currency losses/gains on the lending/borrowings transactions (including related derivatives) of the taxpayer;
  • Guarantee fees paid by the taxpayer in respect of its borrowings;
  • Any expense/income which may be assimilated to financial expenses/financial income. 

On top of the above deduction of 30 percent of the EBITDA, the taxpayer, to the extent it belongs to a consolidated group, may deduct 75 percent of the non-deducted NFE, if its ratio of own funds/total assets is equal to or higher than the own funds/total assets ratio of the group to which it belongs.

Specific deduction limitation

As an exception to the above rules, a portion of NFE related to the interest paid to affiliates is deductible only to the extent it does not exceed 10 percent of the EBITDA, if the taxpayer is thinly capitalized (they are fully deductible if they do not exceed €1 million per financial year.)

The taxpayer is deemed to be thinly capitalized if its affiliated debts/own funds ratio exceeds 1.5 (the affiliated debts corresponding to a group centralized cash management tool are not taken into account.)

The taxpayer would be still entitled to the 30 percent EBITDA deduction if one of the below conditions is met:

  • The affiliated debts/own funds of the consolidated group to which it belongs is higher than its own ratio; or
  • The taxpayer is a credit institution or is eligible as a specialized financing entity.

Non-deductible NFE

The non-deductible NFE, in respect of a given financial year, may be carried forward indefinitely (except for the non-deductible amount resulting from the above thin capitalization limitation, in which case only 1/3 of it is carried forward.)

Deduction of NFE in Tax Groupings

The same rules as above apply, with the proviso that:

  • The NFE and the EBITDA are computed at group level;
  • The €3 million annual limit applies to the whole group (and not on an entity by entity basis);
  • The thin capitalization is computed at the group level (only affiliated debts vis-à-vis the non-group members are taken into account).

1.2 Modifications of certain tax grouping rules

Intragroup sale of certain equity securities

Prior legislation

Under the prior legislation, any capital gain on the intragroup sale of the equity securities, eligible for the participation exemption, was deferred until the securities were sold outside of the group, or until either the seller or the purchaser left the group.

New legislation

As from 2019, the deferral of the taxation would cease to apply upon either the first sale of the above equity securities (whether outside or inside the group), or at the time the owner of the securities would leave the group.

Intragroup waiver of debts and subsidies

Prior legislation

Under the prior legislation, the waivers of debts and subsidies between two entities were neutralized within the tax group, i.e. they would become taxable/tax deductible only at the time where either entity would leave the group.

New legislation

As from 2019, the waivers of debts and subsidies would no longer be neutralized within the group. The new rules also confirm that, within the group, transactions may be implemented on an at cost basis.


Certain provisions are introduced to soften the consequences of Brexit on the tax groupings.

1.3 Participation exemption

Prior legislation

Under the prior legislation, the dividends entitled to the participation exemption were generally 95 percent exempt, it being said that dividends distributed between two entities belonging to the same tax grouping were 99 percent exempt; the 99 percent exemption applied also to dividends distributed to a French member of a tax group by EU subsidiaries which could have been the member of a French tax grouping if they were French.

When dividends were distributed between two entities belonging to the same tax grouping, but the participation exemption was not available, the dividends were fully excluded from the taxable result of the group.

New legislation

As from 2019, the 99 percent exemption applies also to the situation where an EU subsidiary8 distributes dividends to a French entity which is not member of a tax group, but where the two entities could have been part of a tax grouping if the subsidiary was French (unless the French entity is not a member of a tax grouping only because it has not agreed to be part of one such group.)
The dividends distributed between two entities which belong to a tax grouping, but which are not entitled to the participation exemption, are now deducted from the taxable result of the group for 99 percent of their amount, i.e. the same treatment as if the participation exemption was available; the same will apply if the distributing entity is an EU subsidiary8 to the extent it could have been part of a tax grouping if it were French.

1.4 Specific anti-abuse provision

Prior legislation

The transactions within the ambit of the corporate tax could have been only re-characterized (outside specific anti-abuse rules) under the abuse of law procedure, i.e. if the administration could have evidenced that the said transactions were either purely tax motivated or fictitious.

New legislation

As from 2019, the transactions within the ambit of the corporate tax may be re-characterized (as per the application of the EU ATAD Directive) if a given tax benefit is the principal purpose or one of the principal purposes thereof (Tax Purpose).

More precisely, the new rule would entitle the administration to disregard, for corporate tax purposes, arrangements (or series of arrangements with one or more steps) which are put in place to achieve a Tax Purpose, and which are not genuine. The consequences of the new anti-abuse rule and the abuse of law are partly different: The latter results automatically in penalties of 40 percent or 80 percent of the tax avoided, whereas the former should not, in principle, generate any penalty (i.e. the taxpayer would be liable only to the tax and interest.)

Whether a transaction is genuine or not should be decided on whether it has been put into place with an economic justification.

Thus, as from 2019, a given transaction, liable for corporate tax, may be challenged under the abuse of law and under this new anti-abuse rule; the administration would probably use the former where it believes it has a very good case which may result into penalties, and the latter for the cases where the outcome is more doubtful and the Tax Purpose easier to evidence. See also (3) below re the new abuse of law procedure applicable from 2020.

The taxpayer may request a ruling whereby the relevant transactions are not within the ambit of this new anti-abuse rule; the absence of a response by the administration, within six months, is deemed to be an acceptance of the request by it.


Prior legislation

The payment of "manufactured French dividends" by a French tax resident payer to a non-French resident payee, were not deemed to constitute French sourced dividends and, accordingly, were not liable to any French withholding tax (WHT).

New legislation

From July 1, 2019, if the below conditions are met, the manufactured French dividends are liable for WHT:

  • There is a temporary transfer of French equities between a French resident (or a French established) transferee and a non-French resident (or a non-French established) transferor, e.g. stock lending, repo, etc.;
  • The transfer is in place for less than 45 days, and it includes the record date of the underlying French dividends;
  • A manufactured payment is made by the transferee to the transferor.  

The above payment will be subject to a WHT to the extent it does not exceed the underlying dividends. Subsequently, the recipient may ask for a refund of the WHT, if it can prove that the transaction had not as principal purpose and effect to avoid the WHT on the underlying dividends.


Existing legislation

Under the existing abuse of law procedure, the administration may challenge a given transaction if it can evidence that it is either fictitious or purely tax motivated.

If such challenge is successful, the taxpayer is liable for the avoided tax, plus the interest, plus a penalty equal to 40 percent or 80 percent of the tax avoided.

Future legislation

As from January 1, 2020, there will be a new abuse of law procedure (separate from the existing one which will continue to exist), where the criteria will be the "principal tax motivation" of the relevant transaction.

Contrary to the existing abuse of law, the new one would not carry automatically the 40 percent or 80 percent penalties, although the administration may still try to apply a 40 percent penalty for wilful default, or an 80 percent penalty for fraudulent acts.

As with the existing abuse of law, the new one provides the possibility, for both the administration and the taxpayer, to submit the case to a "committee of abuse of law" which gives a non-binding opinion on the case. Under another new provision, whatever the opinion of the committee, should the case go before a competent jurisdiction, the burden of the proof will be always for the administration (for both the existing and the future abuse of law procedures.)


Prior legislation

Under the prior legislation, French corporate taxpayers benefitted from a reduced 15 percent corporate tax rate in respect of:

  • Any income resulting from the licensing of patents and patentable rights
  • Any capital gains realized on the sale of patents and patentable rights held for a minimum of two years, except when the disposal took place among affiliated entities 

New legislation

From 2019, a reduced 10 percent rate will apply, if an election is made, to any net income derived from the licensing of qualifying patents, after deduction of R&D expenses, and after the application of a ratio comparing: (i) the R&D expenses incurred for the creation, the development, or the acquisition of the qualifying patent, either by the taxpayer or by non-related parties to (ii) the aggregate R&D expenses incurred for the creation, the development, or the acquisition of the qualifying patent. The same treatment could apply, also on an election basis, to any net income derived from the sub-licensing of qualifying patents, and to the net gains derived from the transfer, to unrelated parties, of qualifying patents, two years or more after their acquisition.

The favorable regime will cover patents exclusively.

The new provisions also provide for the partial non-deductibility of royalties paid, by a French resident, for the licensing of IP rights, when the recipient is a related entity which is not a resident of an EU or EEA jurisdiction and which is not liable for tax in respect of the said royalties at an affective rate of 25 percent or more.


5.1 Impatriation bonus

Prior legislation

The impatriates are, under certain conditions, entitled to certain income tax benefits during a certain period time after their arrival in France. The benefits include the non-taxation of the actual amount of the impatriation bonus.

New legislation

For impatriates, other than those who move from a foreign jurisdiction to France within the same group, the exempt impatriation bonus may now be deemed to be equal to 30 percent of their net taxable remuneration.

5.2 Carried interest

The carried interest for impatriate fund managers will be taxed as capital gains, i.e. at the all-inclusive rate of 30 percent, subject to the following conditions:

  • The individual has to transfer his/her tax residency to France from 11/07/2018 to 31/12/2022;
  • He/she must not have been a French tax resident during the three calendar years preceding the above transfer;
  • The individual must be an employee, partner, director or a provider of services vis a vis the fund or the entity providing services to the fund and receive a normal remuneration in respect thereof;
  • The individual must own shares (or rights representing a financial investment) in the fund, acquired, at least partly, for consideration; such shares or rights must have been acquired before the individual transfers his/her tax residency to France;
  • The fund must be constituted outside of France, either within the European Economic Area, or in a jurisdiction which has concluded an administration assistance convention with France.

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