Summary of corporate tax proposals
Limited interest deductions: The proposal would limit the deduction of certain amounts of interest payable on loans. Historically, loan interest payments are fully deductible. Under the proposal, if the total interest charge does not exceed €3 million, it would remain fully deductible. However, for interest payments exceeding that threshold, only 85% of interest payments would be deductible in 2012 and 2013, and only 75% of interest payments would be deductible in 2014.
Capital gain on securities qualifying as participation shares (titres de participation): Currently, companies are taxable on 10% of the net capital gain related to participation shares. Under the proposal, the corporate income tax would be computed with respect to 10% of the gross capital gain.
Loss carryforwards: Currently, tax losses can be carried forward, and set off against future tax profit up to €1 million plus 60% of the profit exceeding €1 million. Under the proposal, the percentage would be reduced from 60% to 50%.
“Exit tax” on capitalization reserves of insurance companies: Since 2010, insurance companies have been subject to an “exit tax” of 10% on capitalization reserves. Under the proposal, an additional contribution of 7% would be applicable.
Corporate income tax installment payments: The amounts of corporate income tax payments would be accelerated by increasing the minimum amount to be paid through installments and by reducing the different turnover amounts as floor limits, as follows:
- Turnover between €250 million and €1 billion—75% of the final amount of corporate tax due (instead of the current percentage of 66⅔ %)
- Turnover between €1 billion and €5 billion—85% of the final amount of corporate tax due (instead of 80%)
- Turnover above €5 billion—95% of the final amount of corporate tax due (instead of 90%)
Summary of individual tax proposals
New income tax rate of 45%: A new individual income tax rate of 45% would be imposed on income exceeding €150,000 per “household coefficient” share.
“Exceptional” tax rate of 75%: A new income tax rate would apply in 2013 (i.e., with respect to 2012 income) and in 2014 (for 2013 income) on income exceeding €1 million per person, when generated by certain activities—e.g., from employment, pension, “non-commercial” activities, business activities, excluding capital income. The 75% rate would be the sum of:
- The exceptional contribution (18%) plus
- The income tax rate (45%), the exceptional contribution on high income (4%), and social contributions (8%)
Freeze on income tax “scale”: The thresholds for determining the individual income tax “scale” (bracket) would not be subject to review based on the inflation rate. A discount regime would neutralize the effect on the income taxable for the two lower brackets (5.5% and 14%).
Capital income: Amounts of interest income, dividends, capital gains on securities, profits on stock options and free shares, and carried interests income would no longer be taxable at a flat-rate, but would be included in the income that is subject to tax at the general progressive rate. Taxpayers reporting less than €2,000 in interest would be allowed to elect a flat tax at a rate of 24%.
Real estate capital gains: An exceptional tax allowance of 20% would be allowed with respect to capital gains related to sales made in 2013. This allowance would not apply to sales of vacant land that is pending construction (terrains à bâtir). Such vacant land pending construction would no longer benefit from any allowance as of 1 January 2013.
Cap on tax allowances: Taxpayers would be able to reduce their tax burden, using tax allowances, by a maximum amount of €10,000. The cap previously has been €18,000 plus 4% of the taxable income reported. The cap would not be applicable for the investments in overseas territories and in SOFICA (the film industry)
Wealth tax: The progressive tax effect of the wealth tax, as prior to 2011, would be put back into place, but subject to a cap, so that total taxes (income tax, wealth tax) could not exceed 75% of annual income.
||Rate of wealth tax|
|Up to €800,000
|€800,000 – 1,310,000
|€1,310,000 – 2,570,000
|€2,570,000 – 5,000,000
|€5,000,000 – 10,000,000
|Over €10 million
Increased tax on vacant premises: An increase to the tax on vacant premises would be imposed (in addition to the increase already enacted in August 2012).
Read a September 2012 report [PDF 292 KB] prepared by STC Partners.
*STC Partners is an independent French law firm affiliated with the KPMG global network