Corporate Tax 2010 - BMR Advisors

Bredin Prat
France
non-listed real estate companies (“société à prépondérance
immobilière”). No tax is due upon the sale of listed
companies’ shares when no deed has been drawn up for the
transfer;
3% - uncapped - for the transfer of corporate rights issued by
corporate entities, the capital of which is not divided into
shares. A rebate equal to the number of transferred rights x
EUR 23,000/total number of corporate rights issued by the
entity is applied to the tax basis (except for real estate
companies); and
5% - uncapped - for the transfer of shares issued by nonlisted
real estate companies, irrespective of their form.
Regarding the sale of assets, the following rates generally apply:
5.09% for the transfer of real-property assets located in
France (however, in some cases, such transfers may be
subject to VAT instead); and
free to 5% for the transfer of a going-concern (3% applied on
the part of the price that exceeds EUR 23,000 up to EUR
200,000, and 5% over EUR 200,000).
2.6 Are there any other indirect taxes of which we should be
aware
Some activities or transactions may be subject to specific taxations
(e.g. custom duties on goods imported from outside the EU, excise
duties on wine, liquor or tobacco).
3 Cross-border Payments
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
Dividends paid by a French company subject to corporate income
tax to a non-resident are in principle subject to a 25% withholding
tax (or 18% for EU-resident individuals, subject to certain
conditions), which may be reduced or cancelled under tax treaties.
However, no withholding tax applies on dividends paid by a French
subsidiary subject to corporate income tax to its parent company
(within the meaning of the EU Directive 90/434), if this parent
company is located in the EU and has directly held (or has
undertaken to hold) at least 10% of the share capital of the
subsidiary for at least two years.
Anti-abuse provisions apply when the beneficiary is ultimately
controlled by non-EU resident companies and when the main
reason or one of the main reasons for the structure is to take
advantage of the withholding tax exemption.
Moreover, the French Tax Authorities have admitted that, pursuant
to ECJ’s “Denkavit” decision dated 14 December 2006, dividends
distributed by a French subsidiary subject to corporate income tax
to its parent company subject to corporate income tax, located in the
EU and holding at least 5% in the share capital of the subsidiary for
at least two years, may, subject to certain conditions, benefit from a
withholding tax exemption in the situation where this parent
company may not offset the tax credit corresponding to the French
withholding tax against its corporate income tax.
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Royalties paid by a French company to a non-resident are generally
subject to a 33.33% withholding tax, which may be reduced or
cancelled under tax treaties.
ICLG TO: CORPORATE TAX 2010
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When the beneficiary is a company located in the EU, no
withholding tax applies on the royalties paid by the French
company if one company has directly held (or has undertaken to
hold) at least 25% of the share capital of the other for at least two
years, or if a third company has directly held (or has undertaken to
hold) at least 25% of the share capital of the first and the second
company for at least two years.
Anti-abuse provisions apply when the beneficiary is ultimately
controlled by non-EU resident companies and when the main
reason or one of the main reasons for the structure is to take
advantage of the withholding tax exemption. Such provisions also
apply in the case of excessive royalty payments (for the fraction that
is not considered to be at arm’s length).
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Interest paid by a French company to a non-resident is generally
subject to an 18% withholding tax, which may be reduced or
cancelled under tax treaties.
French law provides for a number of exemptions (e.g. subject to
certain conditions, no withholding tax applies to interest on loans
granted or bonds held by a foreign person to a French company).
Moreover, when the beneficiary is a company located in the EU, no
withholding tax applies on interest paid by the French company or
permanent establishment if one entity has directly held (or has
undertaken to hold) at least 25% of the share capital of the other for
at least two years, or if a third company has directly held (or has
undertaken to hold) at least 25% of the share capital of the first and
the second entity for at least two years.
The same anti-abuse provisions as described for royalty payments
(see question 3.2 above) apply to interest payments.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
Interest paid by a French company to any of its direct
shareholders is deductible for the fraction that does not
exceed a certain interest rate threshold, which is based on the
average rate used by banking establishments for two-year
maturity loans granted to companies (e.g. 6.21% for the
fiscal year 2008), provided that the borrowing company’s
share capital is fully paid up.
Moreover, interest paid by a French company on loans and
advances granted by any related enterprise (i.e. an enterprise
that: (i) directly or indirectly controls the company; (ii) is
controlled by the company; or (iii) is controlled by an
enterprise that directly or indirectly controls the company) is
deductible for the fraction that does not exceed the higher of:
the amount of interest computed by application of the
average rate used by banking establishments for twoyear
maturity loans granted to companies; or
the amount of interest computed by application of the
rate the company may have obtained from
independent financial institutions under comparable
circumstances.
Interest that does not exceed the above interest rate limitation is
disallowed for the fraction that exceeds the highest of:
the amount of said interest multiplied by the ratio of: (i) 1.5
times the company’s net equity; to (ii) the average amount of
indebtedness owed to related enterprises over the relevant
fiscal year (debt-to-equity ratio);
25% of the company’s adjusted earnings before tax and
exceptional items; and
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