The final comments by the tax authorities reflect certain changes and responses to the public consultation (some being unexpected). There are certain outstanding issues.
France’s Finance Act for 2013 instituted a new limitation on the deductibility of net interest expenses, adding to the already existing set of rules restricting the deduction of loan interest (anti-thin capitalization rules and the Carrez and Charasse anti-abuse mechanisms).
Threshold limit on net financial expenses
Under the new rule, once a threshold of €3 million is reached, net financial expenses are limited to:
- 85% deductible for tax years ending on or after 31 December 2012
- 75% deductible for tax years beginning on or after 1 January 2014
The term “net financial expenses” means the difference between: (1) the financial expenses on sums left available or made available to the company; and (2) the financial proceeds on sums left available or made available by the company.
Also taken into account are rental payments relating to:
- Rented moveable assets (between related companies only)
- Rentals with a purchase option
- Finance leases are also taken into account (after deducting depreciation)
Consolidated corporate groups
For tax consolidated companies, the limitation is applied only for the determination of the overall group result (and not at the level of each member company). The €3 million threshold is measured at the level of the group result.
It is therefore appropriate to carefully consider which companies are to be included in the consolidation, bearing in mind other mechanisms (such as the loss carryforward rules and the possibilities of neutralizing the effects of certain intragroup transactions).
Read an August 2013 report (English) [PDF 187 KB] (or French [PDF 605 KB]) prepared by Fidal* tax professionals.
For more information, contact a tax professional at Fidal Direction Internationale* in Paris or with KPMG’s France Tax Center in New York
Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York
Laurent Leclercq, Tax Partner
+33 (0)1 55 68 16 42
*Fidal Direction International is a French law firm that is independent from KPMG and its member firms.