The French tax authorities have issued draft guidelines regarding the interest deduction limitation.
The draft guidelines rejects the deductibility of the interest paid to the lending company in the case when tax on the interest paid is lower than 25% of the tax which would have been paid under French tax law. The new rule also established a procedure for determining the minimum taxation standard of 25%.
According to the draft guidelines French taxpayers liable for the minimum tax standard are required to maintain supporting documentation in records which will have to be provided to the tax authority on request. Companies are needed to ensure compliance with this requirement for claiming a deduction and need not incorporate it the corporate income tax return.
The draft guidelines address certain specific situations resulting from the involvement of “tax transparent” entities. If certain conditions are met the French CFC rules under Article 209 B of the French tax law will be applied.
