Global Tax Insights is Morison KSi’s quarterly tax newsletter made up of contributions from member firms. The newsletter includes country focus articles, tax advisory articles, and international tax cases.
Here you can find the focus on France.
French finance law for the
fiscal year 2020: Tax implications
The finance law was promulgated on 28 December 2019. It makes some changes to the French tax law, the most important of which are summarised below.
Exemption from approval in case of transfer of tax losses on merger
In principle, a merger between companies results in the loss of prior tax losses incurred by the absorbed company.
However, if the merger is placed under a special regime, the tax losses of the absorbed company may be transferred to the acquiring company upon approval by the French tax authorities.
For approval to be granted, the following conditions must be met:
• The transaction is economically justified and has main non-tax purposes.
• The activity that has resulted into the tax losses for which the transfer is requested has not been the subject of significant change by the absorbed company.
• The acquiring company must continue the activity, for a minimum period of 3 years, without subject to significant change.
• The tax losses must not result from asset management or real estate management.
However, for restructuring operations carried out from 1 January 2020, companies can transfer their prior tax losses to the absorbing company without requesting the approval of the French tax authorities if these tax losses do not exceed the ceiling of €200,000.
Transposition of rules to tackle hybrid mismatches
These measures stem from Council Directives (EU) 2016/1164 of 12 July 2016 (Anti-Tax Avoidance Directive 1) and (EU) 2017/952 of 29 May 2017 (Anti-Tax Avoidance Directive 2).
Hybrid mismatches are the consequence of differences in the legal characterisation of payments (financial instruments) or entities, and those differences surface in the interaction between the legal systems of two jurisdictions. The effect of such mismatches is often a double deduction (i.e. deduction in both states) or a deduction of the income in one state without inclusion in the tax base of the other.
To neutralise these effects, the new measures lead to:
• Refusing the deduction in France of a charge corresponding to a payment that will not be included in the taxable income of the foreign beneficiary.
• Adding to the taxable income in France a payment corresponding to an expense deducted from the income subject to tax in the foreign debtor’s state of residence.
These measures exclusively concern hybrid mismatches that arise between associated companies, between the head office and permanent establishment, or among two or more permanent establishments of the same entity.
The entry into force of these measures is accompanied by the abolition of the rule that allowed the deduction of interest paid to an associated lending enterprise, on condition that the lending enterprise be taxed in its state of residence, on the same interest, for an amount at least equal to onequarter of French corporate income tax.
Compliance of withholding taxes with European Union law
As of 2021, foreign companies can claim a temporary restitution of the withholding taxes paid on income distributed to them for a fiscal year, if the company is in losses. The Finance law establishes a deferred taxation. This tax deferral will end when the company makes profit. In order to be authorised to claim this temporary restitution, the company must have its headquarters in a state of the European Union or in a state of the European Economic Area, which has concluded with France an agreement on administrative assistance against tax evasion and tax avoidance and an agreement on mutual assistance for the recovery of taxes.