Answer ... In the current tax landscape, the French Tax Administration is redoubling its efforts to fight tax avoidance.
The 2019 Finance Act introduced:
- new anti-avoidance measures to implement the Anti-tax Avoidance Directive rules limiting the deduction of financial expenses;
- amendments to the French tax consolidated group regime to comply with European case law; and
- measures to implement the new anti-abuse procedure based on the main purpose test.
The French government also decided to speed up the introduction of a new digital tax, applicable to the biggest digital and internet companies, given the failure of EU member states to agree to a common tax on such activities. The French government aims to adapt the French corporate tax regime to businesses which have no physical presence in France, but which do conduct business activities in France.
The gilets jaunes (‘yellow vests’) movement in France has also had an impact on corporate taxation, with the postponement of a corporate tax rate deduction for the biggest companies. The draft law on the new digital tax also provides that French companies and tax consolidated groups with revenues exceeding €250 million should not benefit from a 31% reduced rate, as initially expected, but should continue to be subject to the former 33.33% rate for all taxable income exceeding €500,000.
The French government also needs to balance its budget. During a debate on public finances in the context of the 2020 Finance Bill on 11 July 2019, the Ministry of Economy and Finance said that it was contemplating revising the tax credit for research and development. Cuts would be made on the basis of the tax credit. Further to the recommendations of the Court of Auditors, the operating expenses taken into account in calculating the tax credit would be reduced to:
- between 40% and 46%, instead of 50%, of the staff costs relating to researchers and technicians (increased to 100% for young PhDs); and
- 75% of the depreciation of equipment used for research operations.
The ministry stated: “The rate will be 43% and will generate a return of €200M from 2021.”
Another option mentioned by Joel Giraud, the budget rapporteur in the National Assembly, would involve the calculation of the €100 million threshold beyond which expenses are subsidised at 5% instead of 30% at the group level, rather than at the individual level as at present.