Strategizing Multinational Tax Risks

The French Parliament has adopted the Finance Act for 2016, in addition to amendments of the 2015 Finance Act.  A comprehensive summary by Bird & Bird is provided for reference:

http://www.twobirds.com/en/news/articles/2016/france/finance-act-for-2016-and-amended-finance-act-for-2015-company-taxation

Highlights:

• Country-by-country (CbC) reporting, effective for the 2016 tax year, for French based MNE’s and other companies not subject to a CbC requirement.  (Note for US MNE’s: under the proposed Regulations, this would require CbC reporting in France, and other countries, for 2016 whereas the 2017 tax year would be reported to the IRS in the US)
• Penalty up to EUR 100k if a CbC report is not filed.
• In addition to current French regulations for transfer pricing information, a new requirement has been added: Identification of jurisdictions where intra-group transactions are conducted or where group members own intangible assets.
• The 10.7% exceptional contribution on corporate income tax has not been extended, thereby lowering the total effective tax rate.  Calendar year taxpayers will not be subject to this charge for 2016.
• Dividend distributions commencing in 2016 within a French fiscal group, or from an EU member, is subject to a 1% (vs. 5%) income inclusion, to bring its legislation into compliance with European law.
• The EU Parent-Subsidiary Directive’s provisions are adopted: Anti-abuse de minimis clause including a “main purpose” or “one of the main purposes” test.  Additionally, “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.”
• An advisory committee for the research tax cried and innovation tax credit has been created.

The new legislation highlights new trends that may be followed by other countries:

1. Significant penalties for non-filing of required CbC reports.
2. Additional subjectivity for anti-abuse provisions.
3. Legislation that has been adopted to conform with the European Court of Justice determinations.
4. Additional information reporting, including a focus on IP ownership.

All MNE’s should review these new provisions with a global perspective, not only with respect to companies operating in France.