1 Main Topics of the recent measures of French tax laws: - French Tax Bill for 2009 (FTB) - French corrective Tax Bill for 2008 (FCTB)- - French Law of

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Main Topics of the recent Main Topics of the recent measures of French tax measures of French tax

laws:laws:- French Tax Bill for 2009 (FTB)- French Tax Bill for 2009 (FTB)

- French corrective Tax Bill for 2008 (FCTB)- - French corrective Tax Bill for 2008 (FCTB)- - French Law of Modernization of the Economy- French Law of Modernization of the Economy

adopted on July 23rd 2008 (FLME)adopted on July 23rd 2008 (FLME)

Nexia European tax groupNexia European tax groupAmsterdam - February 2009Amsterdam - February 2009

CABINET SEVESTRE, French Law firm correspondent of Nexia International NetworkCABINET SEVESTRE, French Law firm correspondent of Nexia International Network71 Avenue Marceau – 75116 PARIS – FRANCE71 Avenue Marceau – 75116 PARIS – FRANCE

Tél: 33 (0) 1 53 57 90 10 – Fax: 33 (0) 1 40 70 09 65Tél: 33 (0) 1 53 57 90 10 – Fax: 33 (0) 1 40 70 09 [email protected]@cabinet-sevestre.com

www.cabinet-sevestre.comwww.cabinet-sevestre.com

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ContentsContents

1.1. Taxation of the individuals:Taxation of the individuals:

1.1 System of the « impatriates » : a reinforcement of the 1.1 System of the « impatriates » : a reinforcement of the attractiveness of Franceattractiveness of France

1.2 Income tax: global ceiling of taxes reductions 1.2 Income tax: global ceiling of taxes reductions

2. 2. Taxation of the companiesTaxation of the companies

2.1 Anticipated refund of tax credit2.1 Anticipated refund of tax credit 2.2 Tax consolidation: 2.2 Tax consolidation:

Discontinuance of the group due to a Discontinuance of the group due to a bankruptcybankruptcy proceedingsproceedings Case law « Papillon »Case law « Papillon »

2.3 Measures for Small and medium-sized businesses : Temporary 2.3 Measures for Small and medium-sized businesses : Temporary offsettig of tax losses of foreign subsidiaries or branches of small and offsettig of tax losses of foreign subsidiaries or branches of small and medium-sized business medium-sized business

2.5 Progressive cancellation of the « IFA » tax2.5 Progressive cancellation of the « IFA » tax


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ContentsContents 3. 3. ProcedureProcedure

3.1 Abuse of rights3.1 Abuse of rights 3.2 Declaration of foreign bank accounts3.2 Declaration of foreign bank accounts


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1.1. Taxation of the individualsTaxation of the individuals1.1 System of the “impatriates” : a 1.1 System of the “impatriates” : a

reinforcement of the attractiveness of reinforcement of the attractiveness of France (1/3) (FLME)France (1/3) (FLME)

Field of application:Field of application:This measure concerns the French and foreign employees, who were not French tax resident in the last five years and who are called to exercise their activity in France for a limited period of 5 years.

Tax exemption:Tax exemption: 1- Exoneration of the “impatriation premium”:

Assignees will benefit from a tax exemption in respect Assignees will benefit from a tax exemption in respect with their “impatriation with their “impatriation premium” in two forms:premium” in two forms:

either full tax exemption of the premium, only in case of either full tax exemption of the premium, only in case of intra-group mobility;intra-group mobility;

or an exemption payment of 30% of global remuneration or an exemption payment of 30% of global remuneration for staff recruited directly by a company established in for staff recruited directly by a company established in France.France.


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2- Exoneration of complement of remuneration corresponding to the activity carried out abroad :

An exemption for the portion of remuneration corresponding to the An exemption for the portion of remuneration corresponding to the activity carried out abroad under two conditions:activity carried out abroad under two conditions:

On the one hand, trips abroad must be made for the On the one hand, trips abroad must be made for the employer’s direct and exclusive interest;employer’s direct and exclusive interest;

On the other hand, these trips require an actual residence of On the other hand, these trips require an actual residence of at least 24 hours in another state. Unlike to the previous at least 24 hours in another state. Unlike to the previous regime, this exemption is not limited to 20% of the regime, this exemption is not limited to 20% of the remuneration.remuneration.

The total amount exempted would be limited to the The total amount exempted would be limited to the half of the total remuneration. (30%+20%)half of the total remuneration. (30%+20%)


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Reduction on investement incomeReduction on investement incomeA tax exemption of 50% on income from « passive » A tax exemption of 50% on income from « passive » sources such as dividends, interests and fees and on sources such as dividends, interests and fees and on capital gains on equity transfers from foreign sources.capital gains on equity transfers from foreign sources.Nevertheless, incomes would remain subject to social Nevertheless, incomes would remain subject to social security contributions. (12,1 %)security contributions. (12,1 %)

The new tax regime will apply to individuals who have The new tax regime will apply to individuals who have started their assignment in France on started their assignment in France on January 1st, 2008.January 1st, 2008.

New residency permit to attract Highly Skilled talentNew residency permit to attract Highly Skilled talentA residency permit may be given to foreign nationals who make A residency permit may be given to foreign nationals who make an « excptionnal economic contribution to France ».an « excptionnal economic contribution to France ».This permit will allow them to stay on French territory along with This permit will allow them to stay on French territory along with their families for a period of 10 years.their families for a period of 10 years.


1. 1. Taxation of the individualsTaxation of the individuals1.2 Income Tax : Global ceiling of taxes 1.2 Income Tax : Global ceiling of taxes

reductions reductions (FTB)(FTB)

An upper limit of tax reduction is established.An upper limit of tax reduction is established.

Maximum of various tax reductions is limited to € 25 Maximum of various tax reductions is limited to € 25 000 increased by 10% of the taxable income.000 increased by 10% of the taxable income.

It concerns the particular fiscal advantages granted It concerns the particular fiscal advantages granted in return of an investment, as real estate in return of an investment, as real estate investment.investment.

The fiscal advantages bound to the particular The fiscal advantages bound to the particular situation of the taxpayer situation of the taxpayer are excludedare excluded, as tax , as tax reduction for family situation.reduction for family situation.

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2.1 Anticipated refund of the tax claims 2.1 Anticipated refund of the tax claims (1/3) (FCTB)(1/3) (FCTB) Tax credit carry-backTax credit carry-back

Henceforth, companies can ask for the immediate refund of their tax Henceforth, companies can ask for the immediate refund of their tax credit of carry-back unused on January 1credit of carry-back unused on January 1stst 2009, normally refundable 2009, normally refundable at the end of five years.at the end of five years.

This measure applies to the tax credit resulting from the following This measure applies to the tax credit resulting from the following carry back:carry back: of losses of the tax year 2008;of losses of the tax year 2008; of previous losses, which were carried back but for which tax credit were not still of previous losses, which were carried back but for which tax credit were not still

refundable;refundable; of losses of the previous exercises which were, until now, carried forward with a of losses of the previous exercises which were, until now, carried forward with a

particular election for carry-back.particular election for carry-back.

Companies Companies could use also this tax receivable for the payment of could use also this tax receivable for the payment of

certain professional taxescertain professional taxes..


2. Taxation of the companies2. Taxation of the companies2.1 Anticipated refund of the tax claims 2.1 Anticipated refund of the tax claims

(2/3) (FCTB)(2/3) (FCTB)

R&D tax creditR&D tax credit

The claims of R&D tax credit for the years 2005, 2006, The claims of R&D tax credit for the years 2005, 2006, 2007 are immediately refundable to any company without 2007 are immediately refundable to any company without regard to size or status, instead to be normally refundable regard to size or status, instead to be normally refundable at the end of three years.at the end of three years.

Concerning the 2008 tax credit, an early claim could be Concerning the 2008 tax credit, an early claim could be exercised before the definitive calculation of the tax due exercised before the definitive calculation of the tax due for 2008, from a simple estimation of the company.for 2008, from a simple estimation of the company.

Companies Companies could also use this tax receivable for the could also use this tax receivable for the payment of certain professional taxes.payment of certain professional taxes.


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2. 2. Taxation of the companiesTaxation of the companies2.1 Anticipated refund of the tax credit 2.1 Anticipated refund of the tax credit

(3/3) (FCTB)(3/3) (FCTB)

Instalment of corporate taxInstalment of corporate tax

Companies which consider that instalment of corporate tax paid in Companies which consider that instalment of corporate tax paid in accordance with a financial year closed at the latest September 30th, 2009 accordance with a financial year closed at the latest September 30th, 2009 are going to exceed the amount of corporate tax really owed in accordance are going to exceed the amount of corporate tax really owed in accordance with this financial year can claim the refund of this surplus from the day after with this financial year can claim the refund of this surplus from the day after the close of that financial year closure.the close of that financial year closure.

They can therefore obtain the refund of the surplus instalment paid without They can therefore obtain the refund of the surplus instalment paid without waiting for the liquidation of their corporate tax as it is the case in principlewaiting for the liquidation of their corporate tax as it is the case in principle..

The claim of early refund must be submitted between the day after the The claim of early refund must be submitted between the day after the closure of the financial year and the liquidation of the tax.closure of the financial year and the liquidation of the tax.

Penalties are foreseen in case of surplus of refund with regard to the Penalties are foreseen in case of surplus of refund with regard to the corporate tax effectively owed : corporate tax effectively owed : the amount of the instalment paid decreased the amount of the instalment paid decreased of the obtained refund must be equal at least to 80 % of the due tax. If not, of the obtained refund must be equal at least to 80 % of the due tax. If not, the sanction will be a rise of 5 % of the surplus payment and late-payment the sanction will be a rise of 5 % of the surplus payment and late-payment interest.interest.


2.2. Taxation of the companiesTaxation of the companies2.2 Tax consolidation 2.2 Tax consolidation

(a) Discontinuance of the group due to a (a) Discontinuance of the group due to a bankruptcy proceedings (1/2) (FCTB)bankruptcy proceedings (1/2) (FCTB)

Current situation:Current situation:

Tax losses suffered by a subsidiary before its entrance to Tax losses suffered by a subsidiary before its entrance to the group are offsetted on its own tax resultthe group are offsetted on its own tax result suffered suffered during the period of membership in the tax group are during the period of membership in the tax group are passed on to the parent company for the determination of passed on to the parent company for the determination of the consolidated income.the consolidated income.

In case of discontinuance of the group due to a bankrupty, In case of discontinuance of the group due to a bankrupty, subsidiaries did not recover their tax losses which remain subsidiaries did not recover their tax losses which remain acquired to the parent company.acquired to the parent company.


2.2. Taxation of the companiesTaxation of the companies2.2 Tax consolidation :2.2 Tax consolidation :

(a) Discontinuance of the group due to a (a) Discontinuance of the group due to a bankruptcy proceedings (2/2) (FCTB)bankruptcy proceedings (2/2) (FCTB)

New measure:New measure:

In case of bankruptcy proceedings, subsidiaries recover In case of bankruptcy proceedings, subsidiaries recover deficits unused by the parent company at the discontinuance deficits unused by the parent company at the discontinuance of the group. This plan will be applied in case of the winding of the group. This plan will be applied in case of the winding up of the parent company.up of the parent company.

Furthemore, a new tax consolidation group can be Furthemore, a new tax consolidation group can be immedialty established with a subsidiary of the older group immedialty established with a subsidiary of the older group or an outside company.or an outside company.

Subsidiaries will be able to enter in a new tax consolidation Subsidiaries will be able to enter in a new tax consolidation group without losing their unused deficits.group without losing their unused deficits.



(b) A new step to cross-border tax consolidation : (b) A new step to cross-border tax consolidation : the « papillon » case law (1/3)the « papillon » case law (1/3)

Current situationCurrent situation

The mother company can choose to include in the tax consolidated group the companies held directly (subsidiaries) and the companies held indirectly (sub-subsidiaries).

But, it is not allowed to include the companies held indirectly (sub-subsidiaries), if the holding company (subsidiary) is not a member of the consolidated tax group.

Moreover, it is not possible for a company to be part of the tax

group if the company is not subject to corporate income tax in France.




Solution of the ECJSolution of the ECJ

In the “papillon” case law (C-418/07), the ECJ pointed out that the French In the “papillon” case law (C-418/07), the ECJ pointed out that the French provisions give rise to an provisions give rise to an unequal treatmentunequal treatment based on the place of the based on the place of the

registration of the company.registration of the company. A French company (F) holds by a foreign company subject to corporate A French company (F) holds by a foreign company subject to corporate income tax, itself holds by a French company (M) can become a member income tax, itself holds by a French company (M) can become a member company of the French tax group set up by M.company of the French tax group set up by M.

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100%NL

FR

99,99%

French Tax Group

Papillon SA (French company M)

Kiron SARL (French company F)

ABC BV (Dutch company)




From a practical point of view, this case is very From a practical point of view, this case is very important.important. For the past, group of companies which owns subsidiaries in France

may claim for the advantages of the tax consolidated group, which means that under certain conditions some companies are in the position to claim for having the tax paid back (as from 2005).

For the future, this case will facilitate structuring opportunities in a M&A context. Indeed, a French tax consolidated group will be available without making a strong reorganization of the enterprise.

For the tax policy, this case is the first step to a cross-border tax consolidation.


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2. 2. Taxation of the companiesTaxation of the companies2.3 Measures for small and medium-2.3 Measures for small and medium-

sized business:sized business: Temporary offsetting of tax losses of Temporary offsetting of tax losses of foreign subsidiaries or foreign subsidiaries or branches of Small and branches of Small and Medium-sized business (FTB) (1/2)Medium-sized business (FTB) (1/2) This measure is an exception to the French territoriality This measure is an exception to the French territoriality

incorporate tax principle.incorporate tax principle.

This measure is a temporary gain of treasuray.This measure is a temporary gain of treasuray.

Small and medium-sized businesses are allowed to deduct Small and medium-sized businesses are allowed to deduct tax losses of foreign subsidiaries and branches on the tax losses of foreign subsidiaries and branches on the French tax resultFrench tax result

Then, these foreign tax losses must be taxed to the first Then, these foreign tax losses must be taxed to the first taxable profits made by the foreign entity or , at the latest, taxable profits made by the foreign entity or , at the latest, at the end of the five years following the deduction.at the end of the five years following the deduction.

This regulation is submitted to the «De minimis aid» This regulation is submitted to the «De minimis aid» european measures: limited to € 500 000 until December european measures: limited to € 500 000 until December 31st 2010 instead € 200 000 on a period of three years.31st 2010 instead € 200 000 on a period of three years.


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2. 2. Taxation of the companiesTaxation of the companies2.3 Measures for small and medium-2.3 Measures for small and medium-

sized business:sized business: Temporary offsetting of tax losses of Temporary offsetting of tax losses of foreign subsidiaries or foreign subsidiaries or branches of Small and branches of Small and Medium-sized business (FTB) (2/2)Medium-sized business (FTB) (2/2) This plan is submitted to restrictions :This plan is submitted to restrictions :

• All the concerned businesses must be submitted to corporate tax.All the concerned businesses must be submitted to corporate tax.

• Employees must not exceed 2000. It will be appreciated at the Employees must not exceed 2000. It will be appreciated at the level of the group.level of the group.

• subsidiaries and branches eligible to this rule have to be owned subsidiaries and branches eligible to this rule have to be owned directly and continuously at at least 95 % by the French directly and continuously at at least 95 % by the French company.company.

• These subsidiaries and branches must be located in the EU, or in These subsidiaries and branches must be located in the EU, or in any state which have signed with France a tax treaty with a any state which have signed with France a tax treaty with a clause of administrative assistance in exchange of information clause of administrative assistance in exchange of information and a clause against the fraud or the tax evasion.and a clause against the fraud or the tax evasion.

..


2. 2. Taxation of the companiesTaxation of the companies2.5 Progressive cancellation of the 2.5 Progressive cancellation of the

« IFA » tax« IFA » tax(FTB)(FTB)

Until now, the IFA tax was owed by companies realizing a turnover Until now, the IFA tax was owed by companies realizing a turnover superior to € 400 000. The IFA’s amount is determined regarding superior to € 400 000. The IFA’s amount is determined regarding the turnover excluding VAT.the turnover excluding VAT.

The IFA’s tax schedule is changed to be abolished definitively on The IFA’s tax schedule is changed to be abolished definitively on 2011. Are exempted :2011. Are exempted : From January 1st 2009, companies which making a lower gross From January 1st 2009, companies which making a lower gross

turnover (including financial produts) superior to € 1 500 000 ;turnover (including financial produts) superior to € 1 500 000 ; From January 1st 2010, companies which making a lower gross From January 1st 2010, companies which making a lower gross

turnover (including financial products) superior to € 15 000 000.turnover (including financial products) superior to € 15 000 000.

Finally, as from January 1st 2011, the IFA tax will be definitively Finally, as from January 1st 2011, the IFA tax will be definitively abolished.abolished.


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2.4 Transfer tax on transfer of 2.4 Transfer tax on transfer of businesses (FLME)businesses (FLME) Article 64 of the law adopts a uniform rate, fixed at

3%, for the transfer of all shares. The previous rate was 1,1% for the shares of SAS and SA

and 5% for shares of SARL. However, the amount of the transfer tax is capped at €

5,000 (instead 4,000 previously), only for the transfer of shares of SAS or SA.

Concerning the shares of SARL, the rate is 3% without ceiling.

Concerning the transfer of goodwill, no taxation for a price under of € 23,000, the tax rate is 3% on the fraction of the price between € 23,000 and € 200,000 and keeps it at 5% on the fraction of the price above € 200,000.


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3.3. Procedure Procedure 3.1 Abuse of rights3.1 Abuse of rights (FTCB)(FTCB)

The French Tax Corrective Bill gives a new definition of the abuse of The French Tax Corrective Bill gives a new definition of the abuse of rights by the legalization of recent French cases law.rights by the legalization of recent French cases law.

This new definition concerns now all the taxes.This new definition concerns now all the taxes.

Are constitutive of an abuse of process acts which are :Are constitutive of an abuse of process acts which are : FictitiousFictitious Commanded in the only aim to evade or to decrease taxes, by Commanded in the only aim to evade or to decrease taxes, by

using a literal application of laws or decisions, against their using a literal application of laws or decisions, against their authors purposes.authors purposes.

The French legislator adopted the standard of the transaction The French legislator adopted the standard of the transaction exclusively fiscal exclusively fiscal according to French cases law and contrary to according to French cases law and contrary to the case law of the European Court of justice (ECJ, 21-02-2008, the case law of the European Court of justice (ECJ, 21-02-2008, 425/06, Part Service Srl), which retains the notion of a transaction 425/06, Part Service Srl), which retains the notion of a transaction essentially fiscal.essentially fiscal.

The penalty is now from 40% to 80%.The penalty is now from 40% to 80%.


3. 3. ProcedureProcedure 3.2 Declaration of accounts abroad3.2 Declaration of accounts abroad

(FCTB)(FCTB)

Penalties, incurred by persons, associations, non-commercial Penalties, incurred by persons, associations, non-commercial companies who have not declare accounts held abroad are companies who have not declare accounts held abroad are the following :the following : € € 1 500 in the general case ;1 500 in the general case ; € € 10 000 if the account is held in a country which has not 10 000 if the account is held in a country which has not

conclude a fiscal agreement with France.conclude a fiscal agreement with France.

Persons who do not declare foreign life-insurance agreement Persons who do not declare foreign life-insurance agreement incur penalties about 25% of the deposits done on those incur penalties about 25% of the deposits done on those accounts.accounts.

However, if the taxpayer can proof that the Treasury had no However, if the taxpayer can proof that the Treasury had no damage, the rate of the penalties is decreased at 5% and its damage, the rate of the penalties is decreased at 5% and its amounts is limited to € 1 500.amounts is limited to € 1 500.


Documents

1 Main Topics of the recent measures of French tax laws: - French Tax Bill for 2009 (FTB) - French corrective Tax Bill for 2008 (FCTB)- - French Law of