Corporate Tax 2010 - BMR Advisors

Bredin Prat
France
France
the amount of interest received by the company from related
enterprises,
unless said fraction is lower than EUR 150,000 for the relevant
fiscal year.
Subject to certain conditions, interest disallowed for a given fiscal
year pursuant to the second set of limitations will nonetheless be
deductible from the company’s taxable income of the following
fiscal years.
Thin capitalisation rules will not apply to certain financial
operations or enterprises (e.g. cash pooling arrangements, credit
institutions etc.).
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
A “safe harbour” provision authorises the tax deduction of interest
paid to related enterprises irrespective of the second set of limitations
(see question 3.4 above) if the company evidences that its own debtto-equity
ratio does not exceed the debt-to-equity ratio of its group.
4 Tax on Business Operations: General
4.1 What is the headline rate of tax on corporate profits
The standard CIT rate is 331/3%, to which a 3.3% surcharge (based
on the amount of CIT less a relief of EUR 763,000) is added if the
company’s turnover exceeds EUR 7,630,000, resulting in an
effective CIT rate of 34.43%.
French law provides for a number of temporary CIT exemptions
(e.g. newly created companies, companies established in certain
part of the French territory). Moreover, companies having a
turnover which is lower than EUR 7,630,000 and whose fully paidup
share capital is at least 75% held by individuals are subject to
CIT at the rate of 15% on their first EUR 38,120 of profits, and are
exempt from the 3.3% surcharge.
Special rates apply for long-term capital gains (see question 5.1
below).
4.2 When is that tax generally payable
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
Thin capitalisation rules would generally not apply in this situation.
CIT is prepaid in four instalments (on March 15th, June 15th,
September 15th, and December 15th), which are assessed on the
previous financial year taxable results, subject to specific
provisions for the first instalment. The balance, if any, is due on the
15th of the fourth month following the end of the fiscal year.
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
4.3 What is the tax base for that tax (profits pursuant to
commercial accounts subject to adjustments; other tax
base)
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In addition to the abovementioned thin capitalisation rules, the tax
deduction of interest may be challenged by the French Tax
Authorities if the debt incurred by the local company does not
comply with the normal management of the company, i.e., for
instance, if the French Tax Authorities can prove that such
indebtedness is excessive with respect to its ability to face the
payment of the interest and the reimbursement of the debt over a
reasonable period of time.
French Tax Authorities may also try to challenge the deduction by
qualifying the loan as an equity instrument instead of a debt
instrument.
3.8 Does France have transfer pricing rules
Under French law, profits indirectly transferred by a French
company that controls or is dependent upon a foreign company,
through an increase or a decrease of purchase or sale prices or
through any other means, such as payment of excessive royalties
(i.e. any transaction that is not made at arm’s length) have to be
added back to the taxable profits of the French company.
French Tax Authorities have to prove both the indirect transfer of
profits and the control between the French and the foreign company
(if the latter is located in a tax haven - i.e. a jurisdiction where it
pays less than one half of the income tax it would have paid if it had
been established in France - French Tax Authorities do not need to
prove the control).
French and foreign companies have the possibility to negotiate
advance pricing agreements with the French Tax Authorities and the
relevant foreign authorities.
A draft law is currently under study, providing for formal transfer
pricing documentation requirements.
CIT is based on commercial accounts pursuant to French GAAP,
subject to specific adjustments for tax purposes.
4.4 If it otherwise differs from the profit shown in commercial
accounts, what are the main other differences
The main adjustments made on the commercial accounts, so as to
compute CIT, are the following:
excessive depreciation, provisions or expenses that are not
deductible for tax purposes, CIT and other non deductible
taxes, interest disallowed under thin capitalisation rules, net
long-term capital losses on certain assets, share in the profits
of look-through entities for tax purposes, positive result of
the marked-to-market valuation of certain specific financial
instruments, have to be added back; and
the amount of dividend received by the company, which
benefits from the French participation exemption regime, has to
be deducted, minus 5% of the amount of the dividend (this
lump sum being capped to the actual expenses incurred by the
company for the contemplated fiscal year). Net long-term
capital gains on certain assets, non tax deductible provisions
added back to the commercial result of the concerned fiscal
year, share in the losses of look-through entities for tax
purposes and distribution received from such entities and the
negative result of the marked-to-market valuation of certain
specific financial instruments also have to be deducted.
4.5 Are there any tax grouping rules Do these allow for relief
in France for losses of overseas subsidiaries
A French company, or a French branch of a foreign company,
holding directly or indirectly at least 95% of the capital and voting
rights of other French companies may elect to form a tax-
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