This following discussion summarizes the changes adopted by the lower house on two provisions concerning corporate taxpayers.
Final legislative consideration of the bill is subject to approval / validation by the upper house (Sénat).
The French government in early July 2012 proposed a second amended finance act for 2012—a bill that includes tax measures that would affect companies and individual taxpayers. See TaxNewsFlash-Europe: France - Tax proposals expected to be enacted July-August 2012
The legislative proposals are currently being considered by the newly elected French Parliament, with enacted expected in late July / early August 2012.
Changes to 3% tax on dividend distributions, as made by lower house
A 3% tax would be imposed on dividends (distributions of profits and reserves, including constructive dividends) made to resident and non-resident shareholders.
As originally proposed, the 3% dividend tax would not apply to distributions: (1) of certain undertakings for collective investment; (2) from small or medium-size enterprises, or (3) that are subject to the EU parent-subsidiary directive or under the domestic participation regime.
The lower house supressed the third exception based on the domestic or EU participation exemption regime, and replaced it by adding two situations when the 3% tax would not be imposed:
- When the distributions are made to a company belonging to the same French tax consolidated group (note that setting up a French tax consolidated group requires, among other conditions, a minimum 95% shareholding between the companies likely to be part of the tax group)
- When the dividends are paid in shares
The minimum shareholding for exemption from the 3% levy would be increased from 10% (as originally proposed) to 95%.
While the legislative language provides an exemption only for domestic distributions, professionals with Fidal* note that dividends paid to non-French resident companies holding at least 95% of the distributing company’s share capital would seem to be exempt from this rule—based on EU or bilateral non-discriminatory principles.
Because the 3% tax would apply to distributions made as from the date of publication of the Act (which is likely to be in early August), companies intending to distribute dividends, interim dividends, or reserves may need to consider certain steps if their distributions would be subject to the new 3% levy.
Debt capitalization provisions
Another measure would affect capital contribution increases that was originally proposed to provide similar tax treatment for debt capitalization and debt waiver.
The lower house adopted changes to the treatment of capital losses on shares acquired with respect to a capital contribution when the shares’ value (as of the date of issuance) is lower than their book value. The capital losses on such shares, incurred within a two-year period after the contribution, would no longer be deductible, up to the difference between the shares’ real value and their book value as of the date of their issuance.
This amendment aims to penalize the contributing company only, and not the beneficiary company, which would not be placed in the same situation as if it had been granted a debt waiver.
The provision would apply to capital losses resulting from contributions made as from 19 July 2012 (and thus, not a retroactive effect).
Tax professionals with Fidal* note that this “softening” of the initially planned measure, which originally was viewed as being very restrictive, could be expected to preserve some flexibility with respect to the financial recovery of French loss-making subsidiaries.
Read a July 2012 report [PDF 951 KB] prepared by Fidal: France’s July 2012 Finance Package: Possible Changes Further to the First Parliamentary Debate
* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.