The budget amendment was decided by the French Council of Ministers on June 28, 1995 and presented to the press by the Minister of the Economy and Finance, Mr. Alain Madelin. It uses again the measures previously announced by the Prime Minister analysed in FR 30/95, p. 13 s. It includes in addition a new clause concerning the fixing of standard revaluation coefficients for rental values used as a basis for direct local taxes in 1996.

Subscription to the capital of small-sized companies

As announced by the Prime Minister, the ceiling of payments giving right to a tax reduction provided by article 199 terdecies OA of the French General Tax Code would be increased by 50%. Thus it would increase from FF 50,000 to FF 75,000 for a married couple and from FF 25,000 to FF 37,500 for a single person depending on the subscriptions realised and paid up from August 1, 1995 to December 31, 1996.

The following table specifies the consequences of the new measure on the functioning of the device in case of investments made by a married couple.

Subscriptions to the capital 					Amount of the
performed in 1995 						subscription giving
								right to a tax reduction

From January 1st 	From August 1st 	Total 
to July 31		to December 31

80,000               0          80,000      50,000
60,000          20,000          80,000      70,000 (1)
15,000			65,000			80,000      75,000 (2)
0               80,000          80,000      75,000

(1) of which FF 50,000 for the first period and FF 20,000 for the second one.
(2) of which FF 15,000 for the first period and FF 60,000 for the second period, the total of the payments for the year 1995 giving right to a tax reduction not exceeding FF 75,000 for a married couple and FF 37,500 for a single.
This file also specifies that the new measure would allow, for instance, a Limited Liability Company with a registered capital of FF 300,000 divided between five partners (4 married and 1 single) to offer the interested persons a participation in an increase of capital of FF 375,000 before the end of the year 1995. This contribution of equity capital would give right for the partners to the following tax advantage:

- for each of the married partners:

(FF 75,000) x 25% = FF 18,750;

- for the single partner:

(FF 37,500) x 25% = FF 9,375.

It is assumed that the involved partners would not have subscribed to the capital of other unquoted companies.

10% contribution on corporate income tax

It would be equal to 10% of the corporate income tax computed before application of the tax credits.

If it is spontaneously paid, it might be subject to down payments under the same conditions as the corporate income tax, being specified that for 1995, these down payments should be paid before the end of this year.

The contribution would be set up - as of the payment of the down payments - as much on the corporate income tax of 33.1/3% on profits as on the corporate income tax at a reduced rate of 19% applicable to long term capital gains.

According to our information, the contribution would apply for the first time to the corporate income tax of the tax years closed as of January 1st, 1995. For tax years already closed at this date, the contribution should in some cases be wholly paid before September 15, 1995 (with the first down payment of the 1996 contribution). Neither the tax credits nor the receivables arising from the carry back of the losses, nor the yearly standard taxation would be chargeable to the 10% contribution.

Increase of the normal rate of VAT

The normal rate of VAT would increase by 2 points, i.e. from 18.6% to 20.6% as of August 1, 1995.

The 20.6% rate would apply to operations the taxable event of which will occur as of August 1, 1995, that is to say to deliveries performed and services rendered as of this date. This two points increase, which is temporary, will be suppressed as soon as the government deficit in the meaning of the European Union Treaty is inferior to 3% of the gross domestic product. The increase of the VAT rate triggers a 6% increase in the price of cigarettes.

Reduction of rights on purchases of housings

The decrease of 35% of the departmental right and the regional tax will apply to deeds signed between July 1st, 1995 and December 31, 1996 on the amount of the rights (i.e. a decrease of about 30% of the whole amount of rights with the local taxes).

Increase by 10% of the wealth tax

The increase would apply as of the year 1995 and be paid at the latest on next October 16. It would be computed on the amount of the wealth tax paid by the taxpayer (i.e. if need be after reduction for dependent persons, ceiling or application of the tax paid outside France).

However, it would not be possible to set a ceiling on the increase in itself.

Local direct taxes

The land rental values are used as a basis for local direct taxes (housing tax, land tax, business tax). They are increased, each year, by the application of standard revaluation coefficients determined in function of the variation of rents. These coefficients have not yet been fixed for 1996.

In order to allow the local administrations to dispose, as of next January, of the information necessary to the vote of rates for local direct taxes, the Government will offer to fix the revaluation coefficients, in 1996, applicable to local direct taxes.

These coefficients would be fixed at:

- 1 for undeveloped properties and industrial buildings booked as the assets of an industrial or business company coming under the real tax regime. The rental value of these properties and buildings would thus not change;

- 1.01 for all other developed properties. The rental value of these properties would thus increase by 1%.

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances. For additional information contact Claire Acard on 33/(1)/ or Lionel Benant on 33/ or enter text search: "ARCHIBALD ANDERSEN Profile". The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.