Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘France Finance Act’

France’s Finance Act 2016:new trends

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.

 

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Transfer Pricing

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French tax legislation

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.

 

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Tax Risk Management

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