Answer ... Non-resident corporate entities can be liable to tax in France on both their French-source income and profits generated by business performed in France through a permanent establishment (eg, a fixed place of business, agent or complete operation cycle based in France), under the same rules as those applicable to resident corporate entities, unless a double tax treaty provides otherwise.
Answer ... As a general rule, dividends paid to non-residents are subject to a 12.8% withholding tax for individuals or a 30% withholding tax for companies. The withholding tax applicable to companies on dividend payments will be aligned with the French corporate tax rate as of 1 January 1 2020 (28%). French withholding tax may be reduced or eliminated by applicable tax treaties or EU directives. An increased withholding tax rate of 75% is levied on dividends, interest and royalties paid to a beneficiary or an account located in a non-cooperative state or territory.
A 30% branch tax is applicable to the French profits of a permanent establishment which are deemed to be distributed to the foreign entity, unless the permanent establishment is exempt from the branch tax under either domestic rules or a double tax treaty. The branch tax rate may also be reduced by an applicable double tax treaty.
Generally, no withholding tax is levied on French source interest, provided that it is at arm’s length.
Unless an applicable double tax treaty provides otherwise, withholding tax may be levied, at the same rate as the standard corporate income tax rate, on:
- real estate capital gains;
- capital gains on a substantial participation in a French company; and
service fees paid to non-residents.
Answer ... Under Article 55 of the French Constitution, double or multilateral tax treaties and duly ratified or approved agreements override domestic tax provisions from the date of publication.
Answer ... Not unless an applicable tax treaty applies. Foreign taxes paid abroad cannot be deducted from the French corporate tax due on the same income. However, the foreign taxes may be deducted from the tax base.
There is one exception for Danish source income. Although there is no double tax treaty between France and Denmark, the French Tax Administration has stated that French tax residents can claim a tax credit on Danish source income (other than Danish source pensions) corresponding to the Danish tax paid on that income, provided that the Danish tax is comparable to the French tax.
Answer ... Where a purchaser acquires the assets of a business in an asset deal, it receives a step-up in the asset basis. This means that the price it paid for the assets is the new tax basis in the property. Provided that depreciation is allowed, the assets are depreciable on the stepped-up basis.
Where a corporate entity that is liable to corporate income tax is acquired, the acquirer cannot obtain a step-up in the tax basis of the target’s assets. As a consequence, the latent capital gains on the assets that are acquired will be taxable in the future on the sale of those assets. In addition, the acquirer cannot depreciate the assets based on their actual value when the target (holding such assets) was acquired.
There was previously a market practice under which the purchaser of a transparent company holding real estate could achieve a tax-free step-up in the underlying real estate asset basis by winding up the company shortly after the acquisition, due to the specific rules on the taxation of transparent entities as stated in Quemener (CE 16 February 2000 n°133296, 8e et 3e s.-s). This practice was ended by Lupa (CE 6 July 2016, min. c/ SARL Lupa Immobilière France et min. c/ SARL Lupa Patrimoine, n° 377904 and n°377906), in which the Supreme Court reversed the Quemener ruling. However, the Conseil d’Etat subsequently overturned this decision and validated the Quemener ruling on 24 April 2019 (CE 24 April 2019 SCI Fra n°412503). Its decision thus once again offers the possibility of a tax-free step-up strategy in the acquisition of transparent entities (especially real estate transparent entities).
Answer ... In principle, latent capital gains on assets transferred upon a change in corporate headquarters or the migration of an establishment from France to another state are subject to corporate income tax in France. However, at the taxpayer’s request, this tax may be paid in five annual instalments if the headquarters or the establishment is located in another EU member state or an eligible member state of the European Economic Area. Specific tax filing requirements and payments are then applicable.
Outstanding instalments become immediately payable if:
- an instalment is not paid when due;
- the transferred assets are sold to another party (whether related or not);
- the transferred assets are transferred to a non-EU/non-eligible European Economic Area member state; or
- the company is wound up.
By contrast, any transfer of headquarters from France to a third country entails immediate determination and payment of the corporate tax due on the latent capital gains relating to capital assets and on income not previously taxed, with no possibility to defer the tax payment.