France

France: CJEU rules on 3% contribution on distributed profits

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In France, companies subject to Corporate Income Tax (CIT) are required to pay an additional CIT contribution of 3% on the distributed profits according to article 235 ter ZCA of the French general tax law.

But, the Court of Justice of the European Union (CJEU) issued a judgment on 17 May 2017, ruling that the 3% contribution on distributed profits is not compatible with article 4-1 of the European Union (EU) Parent-Subsidiary Directive (PSD) when the parent company makes the redistribution of the dividends received from its subsidiaries.

France: New tax plans by the newly elected president

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French newly elected president has committed to reduce the corporate tax rate from current rate of 33.3% to 25% with the aim to bring it in line with the EU average within five years.

The tax credit on research, innovation and the start-up status would be kept. However, it has not yet been clarified whether the scope or rate of those “special schemes” would be reduced.

Also, dividends, capital gains on securities and interest are expected to be taxed around at flat rate of 30% from January 2018, including social contributions, which are currently taxed at the marginal rate of 63.5% (45% with respect to income tax, 4% with respect to high income tax and 15.5% with respect to social contributions).

Wealth tax, known in France as ISF is largely perceived as a competitive disadvantage by individuals, businesses and investors in comparison to other European countries. It is therefore planned to have it abolished

The wealth tax also known as ISF of France is highly considered as disadvantage by individuals, businesses and investors compared to other European countries and therefore it is planned to be abolished.

However, ISF would be replaced property wealth tax (IFI) or property income tax (IRI) and this would not include the market value of securities held in companies.

France: CbC reporting notification and filing obligation

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The country reporting (CbC) obligation in France contains a notification according to which French companies subject to the notification obligation are required to mention in their annual corporation tax returns, whether they will be submitting the CbC report or any Entity within the group will submit the CbC report, and if so, the name and location of the entity that has been selected to submit the CbC report will have to be provided.

France: Amending Finance Act for 2016 adopted

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The Amending Finance Law for 2016 was published in the Official Journal of 30 December 2016 after going through a ruling of the Constitutional Court on the compatibility of the provisions of the law.

The Court ruled that the provisions allowing the ratification of the protocol to the France – Portugal Income Tax Treaty of 1971 were contrary to the constitution. According to the ruling of the Court these provisions are not related to budget matters and therefore should not be adopted through a Finance Law.

France –Published Finance Law for 2017

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In France, the Financial Law 2017 had been published under Law No 2016-1917 on 30 December 2016.

On 29 December 2016, the Constitutional Court issued its decision on the comparability of certain provisions of the Financial Law 2017 with the Constitution. Among the most important provisions of the Act, the following provisions were considered to be a contradiction to the Constitution:

  • About the provision of the diverted profits tax, the Court has stated that this tax would be applied only to the decision of the tax administration within the tax audit framework. But since the law does not allow the tax administration to decide whether a company is taxable or not, the court has terminated all the provisions of Article 78 of the law.
  • About the provision of providing immediate reporting on transactions with more than EUR 863,000 to prevent VAT fraud, the Court has stated that the penalty provision in the case of a reporting failure, which is 1% of the portion of the price higher than EUR 863,000, was disproportionate and therefore repealed paragraph I of article 105 of the Act.

MFN clause of the protocol to the Income and Capital Tax Treaty between France and India of 1992 activated

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The most-favored-benefit clause of the Income and Capital Tax Agreement between France and India of 1992 was activated. As a result, the applicable tax rate and the amount of the withholding tax on dividends, interest, royalties and remunerations as mentioned in the contract have also been amended.

MFN clause of the protocol to the Income and Capital Tax Treaty between France and Estonia of 1997 activated

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The Income and Capital Tax Treaty of 2014 between Estonia and Luxembourg activated the MFN clause of the protocol to the treaty between France and Estonia of 1997. As a result, interest paid to any kind of loan of whatever kind granted by a bank, as well as royalties, may be taxed only in the residence state of the beneficial owner. The definition of royalties has also been modified to exclude the use of or the right to use certain copyrights from the definition.