Strategizing Multinational Tax Risks

The 2014 Amended Finance Act and the 2015 Finance Act should enter into force by 31 December, 2014.  A PwC summary is provided for reference:

Click to access pwc-france-enacts-amended-finance-act-14-finance-act-15.pdf

Key observations:

• Horizontal fiscal unity is allowable for “sister” companies held, directly or indirectly, by a EU or EEA parent company.
• Effective 1/1/2015, the 95% participation exemption will not be allowable for dividends paid out of profits from activities not subject to corporate income tax (Note this provision was deleted in the final published draft), or that are deductible by the payor company (in alignment with the EU Parent-Subsidiary Directive).
• A new transfer pricing penalty, for audits starting on or after 1/1/2015, is the greater of 0.5% of transactions with incomplete documentation, or 5% of the amounts reassessed by the French tax authorities with regards to these transactions.
• A new procedure, effective the day following publication, allows a request to waive withholding tax on deemed distributions, subject to procedural rules.
• Details of the tax credit for employment and competitiveness (CICE) shall  be detailed in the financial statements.
• The employee bonus on dividends (Prime de partage du profit) is repealed at the end of 2014.
• The 10.7% corporate income tax surcharge is to be repealed for fiscal years closing on or after 31 December 2016.
• The Social solidarity contribution assessed on turnover should be repealed in 2017.

France has taken a one-year advance action in implementing the EU Parent-Subsidiary Directive, as well as introducing new transfer pricing penalties that need to be considered for adequate documentation.  Additionally, the horizontal fiscal unity initiative and repeal of the employee bonus rule should provide opportunities for planning French legal structures and repatriation going forward.