On 27 September 2019, Government presents Finance Bill for the year 2020 and confirms the willingness to cut the income tax rate for corporate entities; to introduce the hybrid mismatch rules; to implement the EU ATAD 2 directive into domestic law; to impose VAT liability through online platform; to make broaden scope of electronic billing by 2023; and adjustment of the research and development (R&D) tax credit.

Corporate Tax rate

The draft Finance Bill proposes the reduction of the corporate tax rate for all companies, including those with a turnover of € 250 million or more, while smoothing the impact of this decline on public accounts. The rate is subject to 28% on the first EUR 500,000 and 31% on the excess for the year 1 January to 31 December 2020. And, as of 1 January 2021 to 31 December 2021, the rate will be 27.5%; for fiscal years starting on or after 1 January 2022, the standard rate of corporate income tax will be 25% for all companies and all taxable income.

Hybrid Mismatches

France would implement the 2017/952 EU Anti-Tax Avoidance Directive (ATAD 2) into domestic law. The ATAD 2, which seeks to prevent multinational companies from applying “hybrid” rules to limit their taxation of profits, also applies to hybrid mismatches with non-EU countries, thereby extending the scope of the anti-hybrid provisions of the 2016/1164 EU Anti-Tax Avoidance Directive (ATAD 1). It adopted Action 2 of BEPS conducted by the OECD. Particularly, four categories of hybrid devices are concerned: hybrid devices resulting from payments made in the context of a financial instrument, hybrid devices that are the result of differences in the allocation of payments made to a hybrid entity or an institution , hybrid devices that result from payments made by a hybrid entity to its owner or deemed payments made between the head office and the institution or between two or more institutions, and finally the effects of double deduction. Hybrid mismatch rules regarding reverse hybrids are to apply from 1 January 2022.

Withholding Tax

The government also proposed the amendment of dividend withholding tax rules. The new rules permits for a refund of dividend withholding tax for non-resident loss-making companies.

Research and development (R&D) tax credit

The draft Bill provides an adjustment of the research and development (R&D) tax credit by decreasing staff expenses from 50% to 43% taken into account as qualifying expenses to assess the lump-sum running costs referred to in Article 244 quarter B, II, c of the French Tax Code (FTC). This measure would apply to expenses earned during fiscal years beginning on or after 1 January 2020.

VAT rules

This Bill proposes to introduce new VAT rules on e-commerce sales to comply with EU law. The e-commerce VAT rules would apply from 1 January 2022.