Tax professionals with Fidal note that the measures in the draft bill are intended to close certain “tax loopholes”—and to block abusive tax schemes—for individual and corporate taxpayers, and to modify certain provisions of the French tax code to bring them into compliance with EU regulations.
Proposals concerning corporations
- Tax on transfer of registered office or permanent establishment abroad - The proposed legislation would provide a new tax regime with respect to tax on the transfer of a registered office or permanent establishment of a French company (including the transfer of assets) to another EU / EEA Member State.* The bill would allow the taxpayer to elect to defer the amount of corporate tax due on gains relating to the transferred assets, with the deferred tax to be spread over five years. However, the balance of the tax would become immediately payable if, within that five-year period: (1) the assets were sold or transferred to another country that is not an EU / EEA Member State; or (2) the company is liquidated.
Under current law, the corporate tax on such gains has been immediately, fully payable
This change reflects judgments of the Court of Justice of the European Union in
National Grid Indus BV (29 November 2011) and Commission v. Portugal (6 September 2012).
If enacted, this provision would apply to transfers during financial years closed as from 3 December 2012.
*Including a country in the European Economic Area with which France has an income tax treaty or an assistance and exchange of tax information agreement.
- Accounting documents to be provided in electronic format for tax audit - Companies keeping their accounts in an electronic format (i.e., ERP systems, electronic bookkeeping, etc.) would be required beginning 1 January 2014 to provide the tax audit team with the electronic version of the tax and accounting documents during a tax examination— instead of providing hardcopy of the documents.
- Transposition of Directive 2010/45/CE concerning electronic billing - The bill includes measures to transpose EC Directive 2010/45/CE, concerning electronic billing, in an effort to standardize various billing rules in the EU Member States.
Proposals affecting individual taxpayers
- New rules on gift / donation of shares immediately followed by sale - In situations of a gift / donation of shares followed by the subsequent sale of such shares within a two-year period, the capital gain of the seller would be determined with reference to the initial cost of the shares in the hands of the donor, increased by the amount of registration duties paid with respect to the gift / donation. This provision aims at preventing tax optimization with respect to the capital gains by means of an intermediate gift / donation. This new rule would be effective for gifts / donations made as from 14 November 2012.
- Sale of temporary use / usufruct of assets subject to progressive income tax rates - Currently, income on the sale of the temporary use / usufruct of assets is taxed under the capital gains tax regime. The proposal would provide that profits generated by such transfers would be subject to the progressive rates of individual income tax, in the income tax bracket corresponding to type of profits generated by the transferred asset.
This provision would apply with respect to transfers made as from 14 November 2012.
- Election for tax deferral on contribution of shares to company controlled by the contributor - A new tax deferral mechanism would be available (at the taxpayer’s election) for the contribution of shares to a company controlled by the contributor, with the tax deferral period ending on the date when the shares contributed are sold by the company, except if at least 50% of the proceeds of the sale are reinvested by the company within five years following the initial contribution, for the financing of an industrial or commercial activity (passive reinvestments being excluded).
These new provisions aim at preventing the taxpayers from avoiding paying the tax applicable on capital gains upon contribution and still benefit from the proceeds of the sales of the shares by the receiving company that were not subject to taxation. When the sale is made immediately after the share contribution, no capital gain is taxable because the acquisition value is determined as of the date of the contribution.
This change also may affect foreign companies that hold more than 25% of the shares of French companies, provided that the income tax treaty between France and the country where the foreign companies are located contains a substantial participation clause (such as Spain, Italy, Sweden and Japan, for instance) or when no tax treaty is in force (Denmark, for instance).
This measure would apply to share contributions made as from 14 November 2012.
- Increased penalties for failure to report foreign financial accounts, life insurance contracts - The penalties for failing to report foreign financial accounts and/or life insurance contracts held by individuals would be increased to 60% of the highest value of the accounts/contracts during the last 10 years. The penalty would apply when the account / policy owner failed to disclose the origin of the funds held on such accounts.
Other proposals that are pending
Previously, in November 2012, the French government announced a plan to enhance the competitiveness of the French economy. This plan includes, among other measures, a new corporate tax credit based on payroll (aimed at decreasing the cost of employment) which would be financed by an increase in certain value added tax (VAT) rates and the introduction of environment taxes.
This proposal is still pending. Read TaxNewsFlash-Europe:
France - Proposed tax credit to be based on payroll
For more information, contact a tax professional at Fidal Direction Internationale* in Paris:
Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York
Olivier Ferrari, Tax Partner
+33 (0)1 55 68 14 76
Patrick Seroin, Tax Partner
+33 (0)1 55 68 15 93
* Fidal Direction International is a French law firm that is independent from KPMG and its member firms.