• Service: Tax, Global Indirect Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 3/12/2013

France - Administrative guidance under "competitive tax credit" 

March 12: The French tax authorities on 4 March 2013 issued official comments providing guidance under the “competitive tax credit” (crédit d’impôt pour la compétivité et l’emploi – CICE) as introduced by legislation enacted in late 2012.

The competitive tax credit is effective beginning 1 January 2013.


The Third Amended Finance Act for 2013 introduced the new tax credit to encourage competitiveness and jobs. The aim of the CICE is to reduce labor costs for French companies (with respect to low to medium wages) and to generate an expected €20 billion tax break for businesses. Read TaxNewsFlash- Europe (January 4, 2013).

The €20 billion reduction in labor costs is expected to be financed by additional cuts in public spending (approximately €10 billion), a new environmental tax, and changes in the value added tax (VAT) rates—beginning 1 January 2014, the standard applicable VAT rates will be 5%, 10%, and 20%.

Administrative guidance

The French tax authorities in early March 2013 issued official comments concerning the new tax credit. Although the guidance clarifies certain provisions, there are nevertheless some uncertainties concerning the tax credit.

  • The tax credit or CICE is available for a broad range of entities (i.e., all French businesses subject to corporation tax or income tax).
  • The CICE is a tax credit equal to 4% (increasing to 6% beginning from 2014) of certain wages paid to salaried employees in a given calendar year. Eligible salaries must not be more than 2.5 times the French minimum wage (referred to as SMIC or not more than approximately €43,000 per year). As further detailed by the tax authorities, this salary cap is calculated by adding the worker’s statutory work hours plus overtime hours at the base pay rate only, before considering actual overtime pay, bonuses, holiday pay, benefits in kind, etc. (although these forms of compensation are taken into account for the purpose of determining the tax credit base).
  • Specific rules are provided for certain employment situations such as part-time work, fixed-term contracts, periods during which employment is suspended, temporary work, etc.—which in principle are taken into account on a pro rata temporis basis.

Accounting for the tax credit

The French accounting standards authority (Autorité des normes comptables – ANC) in March 2012 issued an information note on the appropriate accounting treatment of the competitive tax credit.

According to the ANC’s accounting standards information note, the CICE or tax credit is to be “booked” as a business expense related to staff costs and, accordingly, increases the operating result.

Tax implications

From a tax standpoint, tax professionals expect that the tax credit will be “neutral” for corporate income tax purposes and is not to be taken into consideration for the purpose of employee profit-sharing or for the French contribution based on the companies’ added value (cotisation sur la valeur ajoutée des entreprises – CVAE). The administrative guidelines do not address these issues.

The tax credit can be offset against corporation tax or income tax.

For companies subject to corporation tax, the tax credit is reported when the annual statement of tax liability is filed. If the corporation tax is not sufficient to offset the amount of the CICE, the balance is carried forward over the following three financial years. Any surplus after the three-year period is refunded to the taxpayer. As an exception to this rule, the credit surplus may be refunded immediately in certain cases, notably for small and medium size enterprises or SMEs (as defined by the EU).

KPMG observation

Tax professionals with FIDAL* have observed that while the CICE is effective 1 January 2013, employers may not see the effects of its benefits until 2014, or more precisely on the date of the annual statement of tax liability (for example, on 15 April 2014 for companies having a financial year ending 31 December 2013), whereas numerous tax increases contained in the 2012 legislation are already effective.

It has been noted that the text of the tax law and the language of the March 2013 administrative guidelines fail to provide clear-cut criteria as how taxpayers may use the tax credit. Under the administrative guidelines, a company’s financial statements must reflect how the tax credit has been used to improve the competitiveness of its business through investment (e.g., research, innovation, training, recruitment, exploration of new markets, sustainability strategies, etc.) and further track such use in the relevant accounting operations. While these reporting requirements are not a condition for claiming the tax credit, companies may not claim and use the tax credit in order to pay out larger dividends or to increase executive/management salaries.

For more information, contact a tax professional with FIDAL Direction Internationale:

Gilles Galinier-Warrain, French Tax Center, KPMG LLP, New York

+1 212-954-8605

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.

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