France: French Finance Act For 2014 & Amended Finance Act For 2013

Last Updated: 11 February 2014
Article by Philippe de Guyenro and Romain Desmonts

The two Finance Acts provide an additional restriction on the deductibility of interest paid to related legal entities, an obligation to disclose analytical accounting and consolidated accounts to the French tax authorities during tax audits, a tax on high compensations, an increase of the corporate income tax surcharge for companies whose annual turnover exceeds €250m.

The Constitutional Court struck down several provisions of the two bills, such as the reporting obligation of tax optimization schemes, the change of the "abuse of tax law" definition and the new rules regarding business restructuring.


New restriction on the deductibility of interests paid to a related entity

The Finance Act for 2014 introduces new prohibitions on the deduction of interest paid to related companies where such interest is not subject to a minimum taxation (so called "hybrid loans").

Pursuant to the new rules interest paid to a related lending company will be deductible only if the French borrowing company proves that the lending company is subject to a corporate income tax of an amount at least equal to 25% of the corporate income tax liability as determined under French standard rules. This proof is to be provided upon request of the tax authorities.

Where the lending company is established outside France, the foreign corporate income tax liability should be compared to the French corporate income tax that would have been levied if it were established in France.

For interest paid to tax-transparent entities (including investment funds), the condition of minimum taxation is examined at the level of the partners or shareholders. The partners must also qualify as related entities of the borrowing company.

This new restriction applies to interest paid to a related entity not subject to a minimal taxation on such interest either because it is considered as non-taxable dividend (qualification mismatch resulting from a genuine hybrid loan) or because the interest income is taxed at a low rate (favorable tax regime).

It applies to fiscal years ending as from September 25th, 2013 i.e. with retroactive effect for qualifying loans contracted before that date.

Comments – The new rules remain vague and contain a number of uncertainties that should be clarified by the French authorities in tax regulations to be issued shortly. The conformity of the new rules to EU law remains highly debated.

Communication of analytical accounting and consolidated accounts

The analytical and consolidated accounts must now be disclosed to the tax authorities upon tax audits. This disclosure requirement applies to taxpayers with revenue exceeding €152.4m or €76.2m depending on the type of activities, or with total gross assets exceeding €400m. Companies that file consolidated accounts are also required to present them during tax audits.

In practice, these requirements apply to tax audit notices sent as from December 31st, 2013. A penalty for failure to present these documents remains to be defined.

Comments – Although infringing the right to privacy of audited companies and their related entities, the Constitutional Court held the new provision to be constitutional as a reasonable anti-tax evasion measure. However, the penalty for failure to present the analytical accounting or consolidated accounts i.e. a fine equal to 50of annual revenue, was struck down as being disproportionate. Agents of the tax authorities also have liberty to make copies of such documents and remain subject to fiscal secrecy.

Transmission of foreign rulings to the French tax authorities

Companies with annual revenue or assets exceeding €400m, as well as any related entities of such companies, must make available an extensive transfer pricing documentation during tax audits. As from 2014, this documentation must also include foreign advance tax agreements obtained from foreign tax authorities for all related entities.

Comments – The Constitutional Court formally stated that the new provision shall not result in an obligation to provide a document that the company does not have in its possession. Therefore, confidential documents issued by foreign tax authorities should not be communicated.

Increase of the corporate income tax surcharge

The corporate income tax surcharge imposed on companies whose total revenue exceeds €250m is increased from 5% to 10.7% (Article 235 ter ZAA of French Tax Code). Therefore, the corporate tax rate is now 38% for such companies. This new measure is enforced for fiscal years ending as from December 31st, 2013.

No suspension of payment during mutual agreement procedures

The mechanism of suspension of payment provided by Article L. 189 A of the French Tax Procedure Code in ongoing mutual agreement procedures was repealed. Previously, when an agreement procedure in order to eliminate double taxation was initiated following a rectification offer, on the basis of a bilateral tax treaty, the corresponding tax was suspended from the opening of the mutual agreement procedure to the end of the third month following the date of notification to the taxpayer of the agreement or disagreement. This mechanism no longer applies.

Introduction of a corporate venture incentive

All companies subject to corporate income tax may depreciate over five years subscriptions to the capital of innovative small or medium enterprises (SME). The objective is to encourage investments in favor of innovative SMEs.

Companies have to be EU SMEs i.e. companies with (i) less than 250 employees and (ii) either with an annual revenue not exceeding €50m or total assets not exceeding €43m.

Innovative companies are companies whose research expenditures represent at least 15% of deductible expenses (or 10% for industrial companies), or which support the creation of products, processes or techniques with an innovative perspective for economic development.

Corporate investors shall retain the shares in the SME for at least two years and shall have only a minority interest in each SME. The gain realized on a sale occurring after two years of holding will be taxed (i) at the standard corporate tax rate for the portion corresponding to the depreciation and (ii) at the rate of 4% for the excess (if the participation is over 5% of the outstanding share capital of the SME).

Comments – As this measure constitutes a State aid for France, its entry into force is subject to prior review and validation by the European Commission.

Securitization of R&D tax credits

R&D tax credits can be utilized by eligible entities to pay the proper income tax liability of the year of the recognition. R&D tax credits in excess can either be refunded in cash to SMEs, or sold to a financial institution, or set-off against the corporate income tax liability of the following three fiscal years. The Amended Finance Act for 2013 offers the right for eligible companies to sell their R&D tax credits to a securitization vehicle. This new possibility enters into force on December 31st, 2013.

Tax on high compensations

A tax on the portion of compensations exceeding €1m paid in 2013 and 2014 is established:

  • The tax is paid by companies, corporations, partnerships and other unincorporated entities paying such compensations;
  • The tax base consists of salaries, wages and similar income, fees, pensions, indemnities, allowances, employees profit participation, stock options and RSUs that are deductible from the taxable income of the company;
  • The tax rate is 50%;
  • The tax liability cannot exceed 5% of the annual revenue realized by the company in the year for which the tax is due;
  • The tax is deductible from the taxable income for the calculation of the corporate income tax, but it is not deductible for the calculation of the corporate income tax surcharge.

In practice:

  • The tax is payable on February 1st, 2014 for compensations included in the tax base for 2013;
  • The tax is payable on February 1st, 2015 for compensations included in the tax base for 2014.

Comments – Despite arguments that this highly anticipated tax would result in a breach of several fundamental rights, the Constitutional Court did not strike it down. The Court stressed that the tax was "exceptional" and "non-renewable", and also pointed out that this was not a tax on income because it is borne by the paying companies, not by individuals. Other arguments regarding the retroactivity of this provision for compensations paid in 2013 were also rejected.


Significant measures have been struck down by the Constitutional Court.

Reporting obligations of tax optimization schemes

This provision created a reporting obligation of "tax planning schemes" by persons selling, developing or implementing such schemes. A "tax optimization scheme" was defined as a "combination of tax, accounting or financial procedures and instruments which main purpose is to reduce the tax burden of a taxpayer, to defer payment or to obtain a refund of taxes and which meets the criteria set by decree taken by the Government". Highlighting the imprecision of the definition, the abusive restrictions on economic freedom and the severity of the penalties, the Constitutional Court held that this new obligation was unconstitutional.

Change of the "Abuse of tax law" definition

To date, a transaction can be challenged by the tax authorities where they can demonstrate that it is fictitious or exclusively tax driven.

The objective of the new measure was to embrace fictional acts or any act whose "main purpose" (instead of "sole purpose") is to evade or mitigate tax burdens. Once again, accessibility and clarity principles require the legislator to draft provisions that are sufficiently unambiguous.

The Constitutional Court underlined that the new definition had the effect of conferring an overly wide discretion upon the tax authorities and struck it down.

Reversing of the burden of proof in case of business restructuring

If, following a business restructuring resulting in a transfer of functions and risk associated to a foreign related company, the EBE (similar to EBITDA) of the transferring company was lower compared to prior to the transfer, the company was required to prove that it obtained fair compensation from the foreign related company as it would have obtained from an independent party. If not, deemed transferred profits would be included in the taxable profits of the French transferring entity.

In striking down the measure, the Constitutional Court noted that the concepts of "functions" and "risks" are not defined, and the period for deemed profits that have to be incorporated in the results is not determined. This measure was also found to be contrary to other provisions of tax law and therefore incomprehensible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.