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Following the Senate's vote approving the text adopted by the Joint Committee on 5 July, the Amending Finance Bill for 2021 has now been definitively adopted. Subject to a possible referral to the French Constitutional Court, the law should be published in the Official Journal in the coming days.
The main measures in the Bill were not significantly modified during the debates. However, some significant measures have been introduced by amendment.
Article 1 of the Law provides, for companies subject to corporate income tax (CIT), the possibility to elect for the carry-back of the loss recorded in respect of the first loss-making financial year ending from 30 June 2020 until 30 June 2021 against the declared profit of the previous financial year and, where applicable, against that of the penultimate financial year, then against that of the antepenultimate financial year.
In accordance with the adopted text, the temporary measure will apply by exception to the provisions of the first and third paragraphs of Article 220 d, I of the French tax code (FTC). The effect of these paragraphs is to restrict the scope of carry-back by limiting:
The wording adopted thus allows companies to carry -back the eligible loss to the profits of the three preceding financial years and without a cap, in accordance with the general explanatory memorandum which states that "Companies will be authorized to carry back, on the profits recorded in respect of the three preceding financial years and without any other cap, any loss recorded in respect of the first financial year ending from 30 June 2020 until 30 June 2021".
Election is possible until the deadline for filing the CIT return for a financial year ending on 30 June 2021 and at the latest before the liquidation of the CIT due in respect of the financial year following the one for which the option is exercised. Therefore, companies whose deadline has already expired or is about to expire on the date of publication of the law will benefit from an exceptional period.
The profits available for carry-back (profits of the three financial years preceding the one in respect of which the option is exercised) will remain determined under the conditions laid down in Article 220 d of the FTC. However, they will logically be reduced by the amount of the losses recorded in respect of previous financial years for which the company has already elected for carry-back.
The receivable obtained by the company will be determined by multiplying the amount of the loss carried back by the CIT rate applicable for the financial year opened as from 1 January 2022, i.e. 25% (or 15% for companies benefiting from the reduced rate for SMEs). This rule deviates from the usual rule provided for in Article 220 d of the FTC under which the receivable is calculated at the CIT rate applicable to the financial year in which the profit has been realized. According to the explanatory memorandum, this derogation is justified by the fact that this rate corresponds to the tax rate on profits on which the major part of the loss would have been charged, had it been carried forward.
The receivable thus calculated will be reduced by the amount of any previous carry-back receivable, when the option for carry-back has already been exercised in respect of previous losses under the conditions provided for in Article 220 d, II of the FTC.
This claim is excluded from the immediate repayment scheme provided for carry-back claims by Article 5 of Law No. 2020-935 of 30 July 2020 (Amending Finance Act for 2020).
These provisions are transposed to tax consolidated groups and are accordingly applicable to the overall loss recorded for the first loss-making financial year ending during the period from 30 June 2020 to 30 June 2021.
Two amendments were not adopted: on the one hand, an amendment initially passed by the Senate aimed at making the application of the mechanism subject to a condition of non-payment of dividends during the loss-making years qualifying for the measure and, on the other hand, an amendment purported to cap the loss carried back to an amount of EUR 2 million. However, no cap was adopted despite the European Commission's recommendation of 18 May 2021, which suggested limiting the amount of losses to be carried back to a maximum of €3 million per fiscal year in which a loss is incurred, in order to limit the impact on national budgets of this temporary measure.
Article 3 of the 2020 Amending Finance Act has added to Article 39.1 of the FTC a provision allowing the full tax deductibility of waivers of rents and ancillary claims relating to buildings leased to unrelated parties within the meaning of Article 39 , 12 of the CGI, granted between April 15, 2020 and June 30, 2021.
This law extends this measure to waivers granted until December 31, 2021.
The extension also applies to non-commercial profits and property income, it being specified that for these tax categories, the income items waived between 15 April 2020 and 31 December 2021 are not taxable.
Article 1 of the 2020 Amending Finance Act provided that aids paid by the French solidarity fund (FSE) were exempt from CIT, income tax and all social contributions and levies, whether legal or conventional. The purpose of this measure was to maximize the impact of the FSE set up by the Government in March 2020, by allowing the fiscal neutrality of the aids paid.
The exemption of sums paid under the FSE was notified by France and approved by the European Commission on 20 May 2020 under the temporary state aid framework.
The Amending Finance Act for 2021 clarifies the tax regime of aids received under the FSE after the adoption of the law of 25 April 2020, as well as the regime applicable to aids paid in 2021 in addition to the FSE.
➢ The exemption continues to apply to aids received under the FSE
The provisions of Article 1, I of the Amending Finance Act for 2020 will apply to aids paid pursuant to Decree No. 2020-371 of 30 March 2020 as amended and pursuant to Decree No. 2020-1049 of 14 August 2020 (specific aid for discotheques) in their version applicable on the date the aid is granted. These will therefore continue to be exempt from CIT, income tax and all social contributions and levies, whether legal or conventional.
➢ Aid for the takeover of a business is exempt
The same exemption will apply to aids for the takeover of a business, paid pursuant to Decree No. 2061-624 of 20 May 2021. This aid aims to support companies that took over a business in 2020, that were banned from welcoming the public between November 2020 and May 2021 and that are not eligible for the FSE, in the absence of any reference turnover.
The Bill had initially provided for the taxation of this aid, however, it became clear during the discussions in Parliament that this aid was an alternative to the FSE rather than additional to the latter, since only companies not eligible for the FSE can benefit from it. Accordingly and for the sake of consistency, this aid will benefit from the same tax regime as the FSE.
Consequently, this exemption will have to be notified by the Government to the European Commission. The Law therefore provides that this provision will enter into force on a date to be determined by decree which may not be more than fifteen days after the date of receipt by the Government of the decision of the European Commission.
➢ No exemption applies to aids that are additional to the FSE and paid as from 2021
Finally, the text of the law expressly provides that no exemption will apply to the following aids received as from 2021 or for financial years ending since 1 January 2021:
Article 2 of the Amending Finance Act modifies the provisions of Article 244 bis B of the FTC, which have recently been found to be contrary to European Union law.
Article 244 bis B of the FTC provides for the taxation in France of capital gains realized by individuals and legal entities domiciled or established outside France on the sale of substantial participations (i.e. holdings exceeding 25% during the last 5 years) in companies established in France. Taxation is performed by way of a withholding tax at French standard CIT rate for legal entities shareholders.
However, the tax authorities have, by regulation, authorized entities liable for this levy, to claim for the refund of the part of the levy which exceeds the CIT liability they would have borne, had they been resident in France (ie. taxation at French standard CIT rate on a lump sum equivalent to 12% of the amount of the capital gain).
In practice, many tax treaties concluded by France preclude the application of Article 244 bis B. However, some treaties containing a so-called "substantial participation" clause provide for the possibility for France to levy this tax (e.g. the treaties with Austria, Spain, Hungary, Iceland, Italy, Malta and Sweden).
In a recent case (CE 14 Oct. 2020, No. 421524, AVM International Holding) the Administrative Supreme Court ruled that the levy instituted by Article 244 bis B of the FTC was contrary to the principles of freedom of establishment and free movement of capital and that the French tax administration could not, by regulation, remedy the incompatibility of the levy with EU law. In addition, in a judgment of 20 October 2020, the Administrative Court of Appeal of Versailles, for its part, ruled that the measure was incompatible with the principle of free movement of capital in the case of a company whose registered office was outside the EU (CAA Versailles, 20 October 2020, No. 18VE03012, Sté Runa Capital Fund I LP).
Moreover, as regards non-resident investment funds, France has been under a formal notice from the European Commission since 30 October regarding the difference in tax treatment between investment funds established in France, which are exempt on capital gains from disposals of French shares, and non-resident investment funds which are subject to the levy of Article 244 bis B of the FTC.
In order to bring French legislation into line with EU law, the Amending Finance Act enacts the possibility, previously provided by regulation, to claim for the refund of the part of the levy exceeding the CIT liability that the legal entity would have borne if its registered office had been located in France. The legal persons concerned are the following:
In addition, the law also provides for an exemption for investments funds located in an EU Member State or in an EEA State which has concluded an administrative assistance agreement with France to combat tax evasion and avoidance and, provided that they do not participate effectively in the management or control of the company whose securities are sold or repurchased , for those located in a non-EU or EEA Member State, having concluded with France an administrative assistance agreement to combat tax evasion and avoidance.
The new rule applies to transfers or redemptions of shares and distributions made on or after 30 June 2021.
This article offers the possibility to municipalities to institute a property tax relief in 2021, in favor of premises used by establishments that have been the subject of a continuous administrative closure between March 15, 2020 and July 8, 2021 due to the covid-19 epidemic and whose owners have granted a total discount of rents for 2020. The vote in this regard must take place no later than October 1, 2021. The cost of the relief will be borne by the municipality.
The benefit of the relief is also subject to the condition that the owner subscribes before 1 November 2021 a declaration to the French Tax Authorities justifying the waiver of rents and the destination of the related premises.
This measure is also subject to compliance with European rules on de minimis aid.
Article 22 offers to municipalities that have chosen to institute a Local Tax on Outdoor Advertising before 1 July 2019, the possibility to adopt, on deliberation taken before 1 October 2021, a rebate corresponding to 10% to 100% on the amount of this tax for 2021.
Such a measure had already been adopted for 2020 by Article 16 of Ordinance No. 2020-460 of 22 April 2020.
The Amending Finance Act renews the exceptional purchasing power bonus scheme, exempt from tax and social contributions up to a ceiling of €1,000, for employees below 3x the minimum wage, in respect of bonuses paid by employers between 1 June 2021 and 31 March 2022.
The ceiling of this bonus may be increased to €2,000 under certain conditions.
As a reminder, the domestic consumption tax on energy products (TICPE) is an indirect tax, which is levied on the various petroleum and hydrocarbon products intended for use as fuel (fuel oil, gasoline, etc.). Professionals managing production, import or storage are mainly liable for this. The tax is then reflected in the price of fuel. The rates, set by Parliament, can be adjusted during the year, depending on changes in the price of oil.
In order to encourage the use of less polluting vehicles, the Amending Finance Act for 2020 has provided for the abolition of the reduced rate applicable to "non-road diesel" (RNG) as of 1 July 2021. This measure mainly affects companies that use combustion engines in their industrial production lines.
The present law finally postpones to 1 January 2023 the abolition of the reduced rate in order to take into account the consequences of the health crisis on the situation of the companies concerned, which are also facing tensions on the price of certain raw materials.
It should also be noted that the agricultural sector will continue to benefit from the special rate of €3.86/hl. From 1 January 2022, and not from 1 July 2021 as initially planned, this special tariff will apply from the acquisition of the product. It will always be a gas oil colored red and traced, but called "agricultural diesel" because only reserved for agricultural and forestry work. There will therefore no longer be any partial reimbursement of the TICPE from 1 January 2023.
Due to the Brexit, various operators have requested the possibility of operating duty-free shops, to passengers travelling to a third country (United Kingdom, in this case), pleading the distortion of competition with regard to airports in particular.
This omission will be rectified as soon as the present Law is published in the Official Journal, since this provision will allow operators to sell free of duties and taxes (subject to conditions) within the Eurotunnel rail terminal.
The Amending Finance Act brings from 66% to 75% the rate of the individual income tax allowance for donations and payments, including the express waiver of income for the benefit of religious associations or public establishments of recognized cults of Alsace-Moselle.
This measure, which is temporary, concerns donations made between 2 June 2021 and 31 December 2022.
Payments made in 2021 will be taken into account up to a maximum of €554. For payments made in 2022, this limit will be increased in the same proportion as the upper limit of the first slice of the income tax scale for the year 2021.
As a reminder, the individual income tax reduction scheme for SMEs provided for in Article 199 terdecies-0 A, VI, 1 of the FTC offers, under conditions, a tax credit to the taxpayer who subscribes to the initial capital or capital increases of SMEs in the start-up or expansion phase. The scheme also applies under certain conditions to subscriptions made through a holding company as well as to subscriptions made via a local investment fund (FIP) or an innovation investment fund (FCPI).
The rate of the tax reduction, initially set at 18%, had been temporarily raised to 25% of the amounts invested, for payments made until 31 December 2021. The law extends by one year the transitional enhanced rate of 25% applicable to this tax reduction. This rate will thus apply to payments made until 31 December 2022, subject to the approval of the European Commission.