The government of France released the draft Finance Bill for 2018 on 27 September 2017. The main changes outlined in the draft Bill are as follows:
- Decrease of the French corporate income tax rate
- Elimination of the 3% tax on dividend distributions
- Repeal of the ‘Carrez rule’ on interest deduction
Decrease of the French corporate income tax rate
In addition to the already enacted progressive reduction of the corporate income tax brought by Finance Bill 2017, the draft Bill 2018 is proposing to reduce the corporate tax rate progressively from 33.1/3% to 25% as follows:
- for tax years starting on or after 1 January 2018, the standard corporate income tax rate for all companies on taxable income up to EUR 500,000would be 28% and for income exceeding this amount 33.1/3 % rate would apply.
- for tax years starting on or after 1 January 2018, the standard corporate income tax rate for all companies on taxable income up to EUR 500,000would be 28% and for income exceeding this amount 31% rate would apply.
- for tax years starting on or after 1 January 2019, the standard corporate income tax rate for all companies would be 28%.
- for tax years starting on or after 1 January 2021, the standard corporate income tax rate for all companies would be 26.5%.
- for tax years starting on or after 1 January 2022, the standard corporate income tax rate for all companies would be 25%.
Elimination of the 3% tax on dividend distributions
From 1 January 2018, the 3% distribution tax would be eliminated for distributions paid by French companies.
On September 2016, a decision provided by the French Constitutional Court held that the distribution tax created an unfair difference in treatment between entities that were a part of a French tax consolidation and those that were not.
Subsequently, a recent decision given by the EU Parent-Subsidiary Directive concluded that the contribution was contrary to Article 4 of Council Directive 2011/96 EU of November 30 and therefore, the tax would no longer apply for dividend payments made on or after 1 January 2018.
Repeal of the ‘Carrez rule’ on interest deduction
For tax years starting on or after 1 January 2012, the “Carrez rule” has been limiting the deductibility of interest expenses on debt that is connected to acquisitions of shares in certain situations in which the French acquiring company cannot demonstrate that the decisions with respect to these shares are made in France. The aim of the provision was to prevent artificial allocation of financial expense to French entities.
However, this provision would no longer apply for tax years closed on or after 31 December 2017 as proposed in the draft Finance Bill for 2018.
The draft Bill is expected to be adopted by the end of December 2017, subject to approval by the constitutional court.
