Comparative Guides

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4. Results: Answers
Corporate Tax
2.
Special regimes
2.1
What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
France

Answer ... A specific corporate tax exemption exists for certain listed real estate companies (sociétés d’investissement immobilier cotées (SIICs)) and their 95% owned subsidiaries (which opt for the SIIC tax regime), as long as they comply with the relevant distribution obligations (ie, distribution of 95% of their rental income, 60% of their capital gains and 100% of the dividends they receive where such income is derived from the exempt tax sector).

An SIIC and its subsidiaries can have a taxable sector (comprising ineligible assets and activities), provided that this represents less than 20% of their assets. Real estate mutual funds (approved by the Financial Markets Authority) are also eligible for a corporate tax exemption, as long as they comply with the relevant distribution obligations (85% of net income from real estate assets, 50% of net capital gains on disposals of assets and 100% of dividends from unlisted companies subject to the SIIC tax regime).

In specific regional assistance zones, small and medium-sized enterprises newly created (before 1 January 2021) are eligible for a five-year corporate income tax exemption. However, the total amount of income so exempted cannot exceed €50,000 in any 12-month period (this previously stood at €100,000 for businesses set up before 1 January 2015), increased by €5,000 per employee living in the eligible area hired as from 1 January 2015. This five-year period is followed by a three-year partial corporate tax exemption (ie, a 75%, 50% and 25% corporate tax exemption, respectively).

Under certain conditions, innovative start-ups or university start-ups established on or before 31 December 2019 are eligible for a full corporate income tax exemption in the first year they make a profit (this may not be longer than 12 months) and a 50% corporate income tax exemption in the following year. They may also be exempted from the local economic contribution and property tax for seven years, pursuant to a decision made by the local communities.

Relief from local direct taxation (local economic contribution, property tax) may also be available in certain areas of France, particularly for the establishment or expansion of industrial businesses.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.2
Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
France

Answer ... Transfer tax relief is available in the event of an equity share transfer through an intra-group transaction:

  • between companies that are members of a group and that comply with the requirements of Article L233-3 of the Commercial Code (ie, control of at least 40% of the voting rights);
  • between companies that comply with the requirements of Article 223A of the French Tax Code (ie, 95% owned subsidiaries or mutual banking groups that qualify for the tax consolidation regime); or
  • during a merger, acquisition or partial transfer of assets that complying with the conditions ruled by Article 210A or 210B of the French tax rules.

However, this is not applicable to share transfers of real estate companies (which are subject to a 5% transfer tax).

A special corporate income tax consolidation regime is also available for groups of companies. A French parent company and its 95% owned subsidiaries may elect to be treated as a group, so that corporate income tax is imposed on the total profits and losses of group members. For equity share transfers effected before 31 December 2018, capital gains on intra-group equity share transfers were excluded when calculating the tax base of the tax consolidated group. In exchange, the 12% taxable portion of the capital gain was added to the tax base of the tax consolidated group if the share equities were transferred outside the group or the transferee and/or owner of the equity shares exited the group. This relief is no longer applicable as from 1 January 2019. However, capital gains on asset transfers (other than equity shares eligible for the tax exemption regime) are still excluded when calculating the tax base.

There is also a participation exemption regime for dividends (please see question 1.4).

Upon the request of the absorbing company, and under certain conditions, a neutral corporate income tax treatment is available in the case of mergers, split-ups or partial contributions of assets that comply with the requirements of Article 210A of the French Tax Code. This mainly results in the deferral of capital gains and provisions taxation (unless provisions are no longer required) at the level of the absorbed company, provided that some declaration requirements are met. Capital gains arising from the cancellation of the absorbing company’s interest in the absorbed company as a result of a merger are tax exempt. Tax losses in the absorbed company can be retained under a specific tax ruling.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.3
Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
France

Answer ... A taxpayer can elect for the ‘micro-enterprise’ scheme, which has the advantages of simplified registration formalities and simplified calculation and payment of income tax.

In order to opt for the micro-enterprise scheme, the taxpayer’s turnover should not exceed a certain threshold, depending on the nature of the activities:

  • €170,000 per year maximum for the sale of goods, objects, supplies of food to take away, or accommodation such as hotels, bed and breakfast, rural lodgings and furnished houses or flats; or
  • €70,000 maximum per year for services such as crafts or independent professional services.

The thresholds are updated every three years and the next update will be on 1 January 2020.

Under the micro-enterprise scheme, the French Tax Administration will determine the taxpayer’s taxable profits by applying a standard tax deduction to the taxpayer’s turnover. This flat rate allowance varies according to the nature of the activity:

  • 71% for purchase-resale activities and furnished accommodation rental;
  • 50% for commercial services; and
  • 34% for other services (ie, independent professional services or non-commercial activity).

In addition, taxpayers eligible for the micro-enterprise scheme are exempt from value added tax (VAT) on their turnover, unless they opt for VAT. The VAT-free regime threshold is:

  • €82,800 per year for the sale of goods, objects, supplies of food to take away or accommodation such as hotels, bed and breakfast, rural lodgings and furnished houses or flats; and
  • €33,200 per year for services such as crafts or independent professional services.

Output VAT cannot be deducted.

In general, business profits earned by individual entrepreneurs include profits taxed in the category ruled by law (industrial or commercial profits, non-commercial profits or profits from agriculture). The rules for determining the tax base are in principle identical to those that apply with regard to corporate income tax. However, the territorial rule for corporate income tax does not apply to the profits of enterprises that are liable to personal income tax. Only entrepreneurs (earning non-commercial profits or commercial profits which are eligible for the simplified tax system) can record their revenues and expenses through the cash-based method, unless they opt for the accounts-based method.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.4
What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
France

Answer ... Corporate entities which have income, expenses, receivables and liabilities in foreign currency must book these in euros in their French accounts. Exchange gains and losses (ie, the difference between the local currency and euros) must be booked in separate accounts in the profit and loss account. Unrealised exchange gains or exchange losses on receivables and liabilities (booked in the balance sheet) are taxable or deductible from the tax base of the corporate entity for corporate income tax purposes.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.5
How are intangibles taxed?
France

Answer ... Some intangibles can be amortised.

At the option of the corporate entity, research and development expenses relating to intangibles can be immediately deducted or can be added to the intangible cost price and amortised.

Patents can be amortised on a straight-line basis over a minimum period of five years, provided that the same depreciation accounting is retained.

Development costs and software development costs must be amortised on a straight-line basis over a maximum period of five years.

The amortisation of goodwill is not allowed.

A new taxation regime for income generated from industrial property and software has been adopted as from 1 January 2019. Under the IP Box regime, income received as consideration for the use (licences or sub-licences) of patents and similar assets (mainly inventions for which patentability has been certified by the competent authority, industrial manufacturing processes and copyrighted software), and capital gains derived from the sale of patents and similar assets, may be taxed at a 10% corporate tax rate under certain conditions.

The taxpayer can opt for taxation either by type of intangible assets or by family of products or services.

The net income base that is subject to the 10% rate will take into account the research costs and a percentage determined from the ‘nexus’ approach (ie, the ratio between the qualified costs and the total costs, including the purchase cost).

In order for a significant proportion of IP income to qualify for tax benefits, a significant proportion of the actual research and development (R&D) activities must have been undertaken by the qualifying taxpayer. Hence, this approach limits the application of the IP Box regime if R&D is outsourced to related parties.

As part of the first year of the option, a ‘capture’ mechanism is available to take into account previously incurred research costs, the amount of which will vary depending on the option date. This new regime will also apply within tax consolidated groups.

In order to opt for the preferential tax regime, detailed documentation must be provided to the French Tax Administration on the first day of any tax audit; otherwise, a penalty corresponding to 5% of the income generated from the non-documented, intangible asset may be applied.

If they are not eligible for the new IP Box regime or if the corporate entity does not opt for this regime, capital gains resulting from intangible transfers are subject to corporate tax at a standard rate (31% or 33.33% for 2019 and 28% for 2020).

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.6
Are corporate-level deductions available for contributions to pensions?
France

Answer ... A corporate entity’s contributions to compulsory basic pension and supplementary pension schemes are deductible from its taxable income. Provisions for retiring allowance are not deductible for corporate income tax purposes.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.7
Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
France

Answer ... French corporate income tax rates and the surtax to corporate income tax do not depend on the sector of activity in which a corporate entity operates.

However, a wage tax applies for corporate employers established in France which are not liable to pay VAT or which are liable for tax on less than 90% of their turnover. The wage tax partly or wholly supersedes VAT in this situation. The payroll tax applies in particular to specific sectors in which corporate entities are VAT exempt on most of their turnover, such as banking, insurance and pure holding companies. The wage tax is based on the gross annual amount of all remuneration and benefits in kind paid by the employer. The tax is progressive (from 4.25% to 13.6%).

Excise duties are also levied on beverages (alcoholic and non-alcoholic), gasoline and tobacco.

A new 3% tax has just been introduced on revenues deemed to have been generated in France by digital companies, wherever they are established, which produce annual supplies of taxable services of more than €25 million in France and €750 million worldwide.

The digital service tax applies to revenue from digital platforms which enable users to interact with each other, including for the delivery of goods or services between users. It also applies to revenue from targeted advertising on digital platforms, including revenue from the transfer and management of personal data for advertising purposes. The first payment is due in November 2019.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.8
Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
France

Answer ... Companies whose turnover exceeds €7.63 million are subject to an additional social contribution at 3.3%, assessed on that part of the corporate tax exceeding €763,000, resulting in an overall corporate tax rate of 32.02% (or 34.43% for the largest companies for 2019). Small and medium-sized enterprises (as defined in question 1.8) are exempt from this additional corporate tax contribution.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
2.9
Are there any deemed deductions against corporate tax for equity?
France

Answer ... No.

For more information about this answer please contact: Eglantine Lioret from Pinsent Masons LLP
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Corporate Tax