Tax cuts to accompany the Relaunch Plan in France: Draft Finance Bill

The French government presented the proposed finance law for 2021 ("Draft Finance Bill") to the French ministerial council on September 28, 2020. It will be considered by the French parliamentarians beginning on October 12, 2020, with a final adoption date of December 31, 2020.

The French government presented the proposed finance law for 2021 ("Draft Finance Bill") to the French ministerial council on September 28, 2020. It will be considered by the French parliamentarians beginning on October 12, 2020, with a final adoption date of December 31, 2020.

Despite the COVID-19 sanitary crisis and the French government's historical endeavor to support the economy during this era, no tax rise is expected, in keeping with Emmanuel Macron's earlier pledges.

On the contrary, the Draft Finance Bill reduces the tax burden and utilizes it as a weapon to kick-start the French economy's recovery in the framework of the French €100 billion relaunch plan, which was submitted to the ministerial council on September 3, 2020. ("Relaunch Strategy").

The Draft Finance Bill continues to reduce corporate income taxation; it implements a new set of measures to reduce taxes on investment; it provides for temporary tax mitigation measures facilitating cash refinancing; it supports green growth and environmental transition by implementing specific green tax incentives primarily for individuals (not covered in this note); and it simplifies some unnecessary tax formalities.

The following section summarizes the key tax provisions of the Draft Finance Bill that are relevant to French firms.

The present corporate income tax rate decrease is being pursued in the same manner.

The Draft Finance Bill continues the recent initiatives taken to reduce corporate income taxation.

The French corporate income tax rate will continue to fall gradually, to 26.5 percent in 2021 (except for enterprises with a turnover of more than €250 million, which would pay a 27.5 percent rate) and to 25 percent for all companies in 2022.

This will bring France in line with the usual corporate income tax rate in Europe.

Reduction in the tax burden on investments

Investment taxes are based on the value of company assets and the degree of investments realized by the firms, and they apply independently of the companies' profit or loss status. They are considered as a barrier to the survival of industry in France.

In this regard, the Draft Finance Bill enacts a new set of provisions. This should result in a €20 billion reduction in the tax burden on investments over the following two years.

Companies that own property used to conduct business are liable to property taxes (specifically, the CFE (Cotisation Foncière des Entreprises) and the land tax (Taxe foncière). The Draft Finance Bill proposes to reduce by half the rental value of industrial facilities used to pay such property taxes beginning in 2021. The rental value, which is now calculated by adding an 8% or 12% rate to the purchase cost of land or building, would be cut to 4% and 6%, respectively.

The CFE exemption given to new enterprises during the year of inception would also apply to business extensions and might be accessible for three years (instead of one).

The French company tax known as CVAE ("Contribution sur la valeur ajoutée des entreprises") is levied on the added value created by enterprises with a turnover more than €152.500, regardless of earnings. According to the Draft Finance Bill, the CVAE rate would be reduced from 1.5 percent to 0.75 percent, with a corresponding modification of the present allowance benefitting firms with less than €50 million in revenue.

In all cases, the total sum due for the CFE and CVAE is limited to 3% of the company's value added. The cap would be reduced to 2% as well.

Temporary tax relief measures

The Draft Finance Bill includes two temporary provisions aimed at easing the refinancing of businesses affected by the sanitary crisis. These actions are also intended to help businesses regain a better financial position and boost their accounting standing.

The first measure allows for the taxation of capital gains realized during a sale and leaseback transaction to be amortized throughout the life of the financial lease, up to a maximum of 15 years. This legislation, if passed, would apply to sale and leaseback transactions made by firms between September 28, 2020 and December 31, 2022.

The second set of measures would allow businesses to undergo a free appraisal of their tangible and financial assets in order to offset the taxation on the step-up. The latent capital gain would be taxed over a period of 15 years for constructions and 5 years for other assets for amortizable assets. The latent capital gain on non-amortizable assets would be taxed upon sale in the future. This metric would apply to revaluations made by corporations during fiscal years ending between December 31, 2020 and December 31, 2022.

Reduction in the burden of tax formalities

The following reforms are included in the Draft Finance Bill to simplify the management of firms' tax issues and to improve their interaction with the French tax authorities:

  • The establishment of a voluntary VAT group regime for French VATpayers that is financially, economically, and organizationally connected. This bill transposes the EU regulation into French tax law, allowing a state to treat people who are legally separate but financially tied as a single VATpayer1. This VAT group scheme is already in place in 20 other EU countries. It is expected to enter into force in France in 2022 and to begin creating consequences in January 2023.
  • Absence of the formality of registering share capital increases and reductions with the tax center.
  • The 1.25 fee for self-employed persons who are not linked with a chartered management centre is eliminated.

Although the Draft Finance Bill may develop as a result of parliamentary debates, the French major employers association (MEDEF) has approved the initial draft and now demands for the reforms to be implemented quickly and efficiently.

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