Answer ... In principle, the tax treatment of capital assets follows the accounts, with some special treatment in certain circumstances. For example, the acquisition cost of shares can be booked as charges or capitalised on the balance sheet and amortised. From a tax perspective, the acquisition cost of shares must be written off over five years.
Capital assets are generally depreciable over the normal use period, at least up to the straight-line amount. Some capital assets (eg, telephones, vehicles) may be depreciable with a declining-balance method if this is consistent with their actual use.
To promote certain investments, several tax schemes provide accelerated depreciation allowances for certain new tangible assets over a 12-month period. Equipment designed to save energy and equipment for the production of renewable energy can benefit from accelerated depreciation.
Answer ... Research and development (R&D) expenses allow for a tax credit (CIR) equivalent to 30% of the eligible expenses borne during the year, plus 5% of the R&D expenses above the threshold of €100 million.
Salaries for research staff are wholly integrated, plus 50% of R&D operating costs and 75% of investments in R&D operations.
All companies incurring R&D expenses are eligible, regardless of size, business sector and nationality.
Small and medium-sized enterprises (SMEs) can claim a refund of unused CIR. Large firms must carry forward the unused CIR over the following three years; any CIR remaining after this three-year period will be reimbursed to them.
Eligible companies can combine the benefits of the CIR with those of the Innovative New Companies scheme, which provides corporate tax, local tax and social security contribution incentives over an eight-year period, as well as with all other tax incentives for new businesses established before 31 December 2019. Such new businesses can benefit from a full exemption for the first financial year or the first period for which they are taxed on profits (this may not be longer than 12 months), followed by a 50% exemption for the next year in which they post a profit.
The local economic contribution and property tax for seven years following a decision by local government.
An innovation tax credit is also available for SMEs, which can obtain tax relief amounting to 20% of the expenses incurred in designing and/or making prototypes or pilots of new products, as defined in the tax regulations. Eligible expenses are capped at €400,000 per business per year. Expenses are declared using the same form and under the same terms and conditions as the research tax credit. Under certain conditions, SMEs can receive their innovation tax credit rebate upfront.
Corporate entities can depreciate over a five-year period those cash contributions made directly to innovative SMEs (until 3 September 2026) or made through French or European investment funds which invest in such entities.
Answer ... Inventories can be assessed from a tax and accounting perspective by using either:
- the weighted average cost method (ie, the cost of the units sold in any given year is the weighted average cost of all available inventories for sale that year); or
- the first in, first out method (ie, the first inventory item purchased is the first to be sold).
For corporate entities whose net income is determined under a simplified profit and loss tax regime, inventories can be assessed using a cost-plus method, to which they apply a deduction on the sale price corresponding to the margin applied for each category of goods.
There is a difference between the accounting definition of inventories (ie, assets that the corporate entity controls) and the tax definition (ie, assets which the corporate entity owns at the end of the financial year, even if the entity no longer controls them). As a consequence, an asset which is no longer in the accounts because it is no longer controlled by a corporate entity must be neutralised from a tax perspective if the entity is still the owner.
Answer ... There are no specific tax rules on derivatives, except in relation to certain financial institutions. However, certain specificities may nonetheless apply – for example:
- unrealised gains and losses resulting from certain derivative instruments are fully taxable or tax deductible at the end of the financial year; and
- in the case of two deemed ‘symmetrical’ positions, a loss on one position is not deductible until the gain on the other is taxed.