Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘France interest limit’

France: Happy New Year bill

The French bill has approved the Finance Bill for 2019, subject to constitutional review for enactment generally effective 1/1/19.  Some important provisions include:

  • Interest deductibility, 30% EBITDA/debt-to-equity, limitaitons
  • Favorable rate of 10%, vs. 15%, for patent related activities, aligning with the DEMPE/nexus provisions of BEPS Action Item 5.
  • Royalty deduction limitation for beneficiaries with less than a 25% effective tax rate and it is listed as a harmful tax regime by the OECD
  • For FYs beginning on or after 1 January 2019, a new anti-abuse provision will be applicable as a result of the transposition of article 6 of the ATAD.  The main purpose, or one of the main purposes, anti-abuse test re: the EU ATAD will be used to determine if the anti-abuse rule applies for corporate income tax
  • A new anti-abuse provision for all other taxes than CIT will allow the FTA to disregard acts which, by seeking to benefit from a literal application of provisions or decisions, against the initial objective sought by their authors, were driven by the main purpose of avoiding or reducing the tax burden which would have normally been borne by the taxpayers, due to their situation or their real activities, if those acts had not been entered into.  This provision is effective in 2020
  • French GAAR rule is retained (allowing flexibility to combat perceived abuse)
  • The Finance Bill for 2019 transposes into French domestic law the provisions of the Directive 2017/1852 dated 10 October 2017 as regards mechanisms to settle double taxation arising as a result of the application of double tax treaties concluded between EU Member States.
  • French tax consolidation group rules are modified

France is known for its proactivity in enacting anti-abuse legislation, and especially interesting is the royalty deduction limitation which  a two-prong test, whereas Germany is also considering a harsher test to combat the US FDII benefit.  

EY’s Global Tax Alert provides detailed summaries of the above provisions, among others.$FILE/2018G_012550-18Gbl_French%20Parliament%20approves%20Finance%20Bill%20for%202019.pdfFranc

France Finance Bill 2014 & Employer tax

The 2014 Finance Bill was published 30 December 2013, containing the following measures as summarized in the KPMG link herein.

  • Limitation for related party interest, if lender is not equal to a minimum of 25% of corporate income tax under French law
  • Requirement to provide “analytical accounts” to the French tax authorities during a tax audit if certain thresholds are exceeded
  • Requirement to provide “consolidated accounts” to the French tax authorities during a tax audit
  • Repeal of a provision staying tax collection when a French taxpayer files a MAP case

Note the above provisions are in addition to a new employer tax of a 50 per cent levy on the portion of wages above 1 million euros in 2013 and 2014.  Including social contributions, the rate will effectively remain about 75 per cent, though the tax will be capped at 5 per cent of a company’s turnover.

These significant provisions should be reviewed and monitored closely by MNEs with French operations, or contemplating entering the French market.  Future tax measures should also be expected in France in an effort to improve their GDP and economic growth.



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