Cédric Devouges
Sandrine Gobaut
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Cédric Lantonnois von Rode, +33 1-55-61-11-04
Financial Services
Organization
Magali Lévy
Sylvie Magnen
Nevenna Todorova
Dan Zerbib
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International Tax and Transaction Services – Tax Desks Abroad
Mathieu Pinon
+1 (212) 773-2021 (resident in New York)
Frederic Vallat
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International Tax and Transaction Services – International Capital Markets
Claire Acard
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Soraya El Bsat, +33 1-55-61-13-84 Financial Services
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International Tax and Transaction Services – Operating Model Effectiveness
Jean-Laurent Bargiarelli
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Thibaut Boucharlat +33 1-55-61-03-68
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Alexandra Loran, EMEIA Tax +33 1-55-61-18-51 Deputy Leader
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International Tax and Transaction Services – Transfer Pricing
Ligia Botelho de Melo
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Karen Chauveau +33 1-55-61-16-29
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Frank Deleon
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Olivier Marichal
Maxim Maximov
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Nadia Sabin +33 1-55-61-10-15
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Arnaud Sage
Business Tax Services
+33 1-46-93-78-30
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Xavier Dange, +33 1-55-61-11-28
France Business Tax
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Tax Policy and Controversy
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Jean-Pierre Lieb, +33 1-55-61-16-10
EMEIA Tax Policy
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Charles Menard, +33 1-55-61-15-57
Tax Controversy Leader
Agnès Serero, Local Taxes
Business Tax Advisory
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+33 1-55-61-14-15
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Amandine Allix-Cieutat, +33 1-55-61-33-84
Private Tax (Private Client Mobile: +33 6-64-05-95-08 Services [PCS])
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Benjamin Bardet, +33 1-55-61-14-51
Local Taxes
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Tax Accounting Leader
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Financial Services
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Marie-Amélie Deysine, Tax Knowledge Leader +33 1-55-61-14-24
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Régis Houriez, +33 1-55-61-12-06
EMEIA Business Tax
Services Leader
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Loubna Lemaire, +33 1-55-61-13-44
Financial Services
Organization – Bank
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Florentin Leroux, Mobile: +33 6-26-97-46-99
Private Tax
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Vincent Natier, +33 1-55-61-12-61
Financial Services
Organization – Tax Market Segment Leader
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Global Compliance and Reporting
Pascale Attia
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Legal Services
Anne-Elisabeth Combes, +33 1-55-61-13-77
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Géraldine Roch
Financial Services
Organization
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+33 1-55-61-14-02
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Jean-Christophe Sabourin, +33 1-55-61-18-55
Transaction
Bordeaux
EY Société d’Avocats
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+33 5-57-85-47-00
Hangar 16, Entrée 2 Fax: +33 5-57-85-47-01
Quai de Bacalan 33070 Bordeaux Cedex France
Private Tax
Johan Gaulin
+33 5-57-85-47-38
Mobile: +33 6-74-89-04-85
Email: johan.gaulin@ey-avocats.com
Lille GMT +1
EY Société d’Avocats
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France
International Tax and Transaction Services – International Corporate Tax Advisory
Etienne Durieux
Global Compliance and Reporting
Véronique Hottin
Lyon
EY Société d’Avocats
+33 3-28-04-38-01
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+33 3-28-04-35-12
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International Tax and Transaction Services – Transfer Pricing
Franck Berger
Laurent Chatel
+33 4-78-63-17-10
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Mobile: +33 6-80-04-64-68
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+1
Profits derived in France by branches of nonresident companies are deemed to be distributed, normally resulting in the imposition of a branch withholding tax of 25% on after-tax income. This tax is not imposed on the profits of French branches of companies that are resident in EU Member States and that are subject to corporate income tax in their home countries. It may be reduced or eliminated by tax treaties. Although branch withholding tax normally applies to undistributed profits, such profits may be exempted from the tax if an application is filed with the tax authorities and if certain requirements are met.
Rates of corporate tax. Companies are subject to a 25% corporate tax rate.
A social security surtax of 3.3% is assessed on the corporate income tax amount. This surtax is imposed on the portion of corporate tax due exceeding EUR763,000 before offsetting tax credits, including the tax credits granted under tax treaties (see Foreign tax relief). The 3.3% surtax does not apply to companies whose annual turnover is lower than EUR7,630,000 if at least 75% of the company is owned by individuals or by companies that themselves satisfy these conditions.
Members of consolidated groups must take into account the global turnover of the group to determine whether they reach the EUR7,630,000 threshold mentioned above.
A reduced corporate tax rate of 15% applies to the first EUR42,500 of the profits of small and medium-sized enterprises if certain conditions are met, including the following:
• The turnover of the company is less than EUR10 million.
• At least 75% of the company is owned by individuals or by companies that themselves satisfy this condition and the above condition.
Capital gains. Capital gains derived from the sale of fixed assets by French companies are subject to corporate income tax at the standard rate.
Capital gains derived from the sale of qualifying participations that have been held for at least two years before their sale are exempt from tax. The following are qualifying participations:
• Titres de participation (specific class of shares for accounting purposes that enables the shareholder to have a controlling interest)
• Participations eligible for the dividend participation exemption regime if the shareholder holds at least 5% voting rights, provided that the participations are recorded in a special subdivision of the balance sheet
However, the corporate income tax applies to 12% of the gross capital gains realized on qualifying participations. As a result, the effective tax rate on such gains is 3% (based on a 25% standard corporate tax rate). Capital losses incurred with respect to such qualifying participations may no longer be offset against capital gains.
This participation exemption regime does not apply to capital gains derived from the sale of qualifying participations in a company established in an uncooperative country (as defined in
Article 238-0 A of the French Tax Code; see Section E), unless it is demonstrated that the foreign company’s activities are real and do not aim to localize revenues in an uncooperative country.
Under certain conditions, the sale of units in venture mutual funds (FCPRs, FPCIs and SLPs) and venture capital investment companies (SCRs) may benefit from the long-term regime if the units have been held for at least a five-year period. Under this regime, the capital gains are fully exempt up to the part of the funds or investment companies’ assets represented by participation shares and subject to a 15% tax rate for the exceeding portion.
Long-term capital losses can be offset against any kind of longterm capital gains.
The exemption or reduced rate also applies to various distributions made by the FCPRs and SCRs after a two-year-holding period.
Capital gains derived from sales of participating interests in companies that are predominantly real estate companies are subject to tax at the standard rate. For sales of participating interests in listed real estate companies that have been held for at least two years before their sale, the rate is reduced to 19%.
Long-term capital gains derived from the first sale of participating interests in companies whose assets’ value is mainly composed of television broadcasting rights are subject to tax at a rate of 25%.
Capital gains and income derived from patents and patentable rights. A reduced tax rate of 10% applies on an election performed on an asset-by-asset basis (or, under certain conditions, on a group-of-assets basis), to the net income derived from the licensing of qualifying patents or software, and after deduction of the research and development (R&D) expenses incurred during the financial year (a recapture of R&D expenses incurred since the financial year for which the election was made applies the first time the net income is calculated). If negative, the result is carried forward and deducted from income derived in subsequent years from the licensing of the qualifying patent or software. If positive, a ratio, which cannot be greater than 100%, is applied to determine the net income subject to the 10% rate. This ratio compares the following:
• 130% of the R&D expenses incurred for the creation, or the development of the qualifying patent, either by the claiming taxpayer or by unrelated parties
• The total R&D expenses incurred for the creation, the development, or the acquisition of the qualifying patent
For the calculation of the ratio, the R&D expenses include expenses incurred prior to the election, eventually limited to those incurred during financial years beginning on or after 1 January 2019. A safe harbor provision allows election of a replacement ratio, subject to an agreement with the tax authorities.
The same tax treatment could apply, also on the basis of an election, to the net income derived from the sublicensing of qualifying patents, and to the net gains derived from the transfer to
at combating tax fraud. However, to benefit from the withholding tax exemption, foreign CIVs must meet the same definition as French CIVs, and the content and actual implementation of the administrative assistance provisions must effectively allow the French tax authorities to obtain from the foreign tax authorities the information needed to verify this condition. A 15% withholding tax applies to distributions of income exempt from corporate income tax that are made by French real estate investment trusts (so-called SIICs and SPPICAVs) to French or foreign CIVs.
Withholding taxes on interest and royalties. Under French domestic law, withholding tax is no longer imposed on interest paid to nonresidents. However, a 75% domestic withholding tax is imposed on interest on qualifying borrowings paid into uncooperative states (see Section E), unless it is demonstrated that the corresponding operations do not aim to localize revenues in the uncooperative states.
A 25% withholding tax is imposed on royalties and certain fees paid to nonresidents.
However, as a result of the implementation of EU Directive 2003/49/EC, withholding tax on interest and qualifying royalties paid between “associated companies” subject to corporate income tax of different EU Member States was abolished. A company is an “associated company” of a second company if any of the following conditions is satisfied:
• The first company has maintained a direct minimum holding of 25% in the capital of the second company for at least two years at the time of the payment or commits itself to maintain such holding for a two-year period.
• The second company has maintained a direct minimum holding of 25% in the capital of the first company for at least two years or commits itself to maintain the holding for the two-year period.
• A third company has maintained a direct minimum holding of 25% in the capital of both the first and second companies for at least two years or commits itself to maintain such holding for a two-year period.
In these three situations, if the company chooses to undertake to keep the shares for at least two years, it must appoint a tax representative in France who would retrospectively pay the withholding tax if the shares are sold before the end of the two-year period.
Domestic withholding tax on royalties may be reduced or eliminated by tax treaties.
Furthermore, a nonresident entity receiving royalties and certain fees subject to withholding tax may benefit from a deferral of this withholding tax if the entity is in a tax-loss position and the entity is located in an EU Member State, or in another state that is part of the EEA agreement and is not uncooperative (see Section E) and that has concluded with France an agreement with an administrative assistance clause for the prevention of fraud and tax evasion, as well as an agreement with a mutual assistance clause for tax collection that has a similar scope as the EU directive.
The withholding tax on royalties and fees for the provision of certain services is computed based on the gross amount of the sums paid, minus, under specific conditions, a 10% allowance. Moreover, under some conditions, beneficiaries that are not able to offset the French withholding tax against their local corporate income tax liability may claim a refund of the portion exceeding the taxation that would have been due in France on the income, taking into account the corresponding expenses directly incurred to generate or retain the revenue that would have been tax deductible if the beneficiary had been located in France.
Foreign tax relief. In general, income subject to foreign tax and not exempt from French tax under the territoriality principle is taxable. However, most tax treaties provide for a tax credit that generally corresponds to withholding taxes on passive income. Loss-making companies cannot use the tax credit, and they are not allowed to deduct the underlying foreign tax (the withholding tax levied on foreign-source income, which gives right to a tax credit under the double tax treaty).
C. Determination of trading income
General. The assessment is based on financial statements prepared according to French generally accepted accounting principles, subject to certain adjustments.
Deductibility of interest. In general, interest payments are fully deductible. However, certain restrictions are imposed.
Interest accrued by a French entity with respect to loans from its direct shareholders may be deducted from the borrower’s taxable income only if the following two conditions are satisfied:
• The share capital of the borrower is fully paid-up.
• The interest rate does not exceed the average interest rate on loans with an initial duration of more than two years granted by banks to French companies.
The deduction of interest and financial expenses may be limited by two main rules.
First, related-party interest is tax-deductible only if it meets an arm’s-length test. Under this test, the interest rate is capped at the higher of the following two rates:
• The average annual interest rate on loans granted by financial institutions that carry a floating rate and have a minimum term of two years
• The interest rate at which the company could have borrowed from any unrelated financial institution, such as a bank, in similar circumstances (that is, the market rate)
The portion of interest that exceeds the higher of the above two thresholds is not tax-deductible and must be added back to the company’s taxable income for the relevant financial year (this portion is also considered to be distributed income).
Second, the net financial expenses incurred during a financial year (that is, the financial expenses reduced by financial income) are deductible from the taxable income of a company only to the extent that they do not exceed the higher of the two following thresholds:
• EUR3 million
• 30% of the adjusted taxable income of the company
For purposes of the above rule, financial expenses (or income), as defined, include, but are not limited to, any amounts that are accrued in remuneration for monies put at the disposal of the company (or by the company to another party). They include, but are not limited to, the following:
• Payments under profit participating loans
• Imputed interest on instruments such as convertible bonds
• Amounts under alternative financing arrangements
• Notional interest amounts under derivative instruments or hedging arrangements related to an entity’s borrowings
• Certain foreign-exchange gains and losses on borrowings and instruments connected with the raising of finance
• Guarantee fees for financing arrangements, arrangement fees and similar costs related to the borrowing of funds
The adjusted taxable income corresponds to the taxable income before the offset of tax losses and without taking into consideration net financial expenses and, to some extent, depreciation, provisions, and capital gains and losses. Seventy-five percent of the net financial expenses exceeding the threshold is tax deductible, provided that either of the following circumstances exist:
• The equity-to-asset ratio of the company at least equals, or is not lower by more than two percentage points, the equity-toasset ratio of the consolidated group to which it belongs.
• The company is a stand-alone company (it does not belong to a consolidated group, has no permanent establishment outside of France and is not related to any other company such as set out by Articles 2-4 of the EU Anti-Tax Avoidance Directive).
Financial expenses that are excluded from the deductible expenses of a given fiscal year can be carried forward indefinitely (subject to the abovementioned limitations). If, for a given financial year, a company does not fully utilize its deduction capacity (that is, the amount of net financial expenses is lower than the thresholds mentioned above), the unused portion of deduction capacity, which equals the positive difference between the applicable thresholds and the net financial expenses, can be carried forward to the five following financial years. However, this deduction capacity carryforward cannot be used to deduct nondeductible interest expenses that have been carried forward. The carryforward of nondeductible expenses and the carryforward of unused deduction capacity are ruled out if the company benefited from the additional 75% deduction for stand-alone companies.
If the company exceeds a specific 1.5:1 debt-to-equity ratio (for this ratio, the debt is the amount of debt with related entities) and cannot demonstrate that its debt-to-equity ratio is not higher by more than two percentage points than the debt-to-equity ratio of the consolidated group to which it belongs, restrictive rules apply. A portion of the net financial expenses, determined by application of the following ratio to the net financial expenses, is subject to the regular threshold (EUR3 million or 30% of the adjusted taxable income of the company):
Average amount of indebtedness to unrelated parties + (1.5 x equity)
Average amount of indebtedness
The group may include the French subsidiaries in which the parent has a direct or indirect shareholding of at least 95% and for which the parent company has elected tax consolidation.
A French company or permanent establishment is allowed to form a French tax consolidated group with other French companies or permanent establishments if all are owned at 95% or more by a foreign parent company or permanent establishment is allowed that is subject to a tax equivalent to French corporate income tax in another EU country or EEA country (“horizontal tax consolidation”). The 95% ownership test can be met directly, or indirectly, through intermediate companies or permanent establishments that are all subject to tax in an EU/EEA country or through other French consolidated companies.
D. Other significant taxes
The following table summarizes other significant taxes.
Territorial Economic Contribution; capped to a certain amount of the value added by the company; maximum rate
Social security contributions, on gross salary (approximate percentages); paid by Employer
General social security tax (contribution sociale
, or CSG) on
General social security tax on patrimonial and financial income (for example, income from real estate and securities)
Social debt repayment tax (contribution remboursement de la dette sociale, or CRDS), on all income
On sales of shares in stock companies (including sociétés anonymes, sociétés par actions simplifiées and sociétés en commandites par actions); intragroup transfers are exempt
On sales of shares of private limited liability companies (sociétés à responsabilité limitée, or SARLs) and interests in general partnerships (sociétés en nom collectif, or SNCs); intragroup transfers are exempt 3 On sales of goodwill 3 to 5
On sales of professional premises, housing, businesses and shares of companies whose assets primarily consist of real estate 5 to 6.5
E. Miscellaneous matters
Foreign-exchange controls. As a general rule, standard foreign investments are free for the most part. However, some foreign
In the context of a tax audit, certain companies (companies with total net sales before taxes or total gross assets equal to or greater than EUR150 million, subsidiaries owned at more than 50% by such a company, parent companies that hold more than 50% of such a company and members of a French tax consolidated group that includes at least one company that meets these criteria) must provide their transfer-pricing documentation on the tax inspector’s request or within 30 days (Article L 13AA of the French Tax Procedure Code). The transfer-pricing documentation includes the list of information recommended by the Organisation for Economic Co-operation and Development (OECD) for the Master File (Annex I to the new Chapter V of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations) and the Local File (Annex II to the aforementioned Chapter V). If the company fails to provide the documentation in due time, a penalty of up to either 5% of the transfer-pricing reassessment or 0.5% of the volume of the transactions carried out with related enterprises is applied, with a minimum of EUR50,000 per financial year under audit.
In addition, certain companies (a company with total net sales before taxes or total gross assets equal to or greater than EUR50 million, a subsidiary owned at more than 50% by such a company, a parent company that holds more than 50% of such a company and members of a French tax consolidated group that includes at least one company that meets these criteria) are required to file a “light” transfer-pricing statement within six months after the filing deadline of the tax return (Article 223 quinquies B of the French Tax Code). The transfer-pricing statement includes the following:
• General information about the group (main activities, companies related to the reporting entity, intangible assets held by the group and used by the reporting entity, and general description of the transfer-pricing policy applied by the group)
• Specific information for intragroup transactions
• Disclosure of change in the activity of the entity or in the transfer-pricing method being applied
Although the penalty for a not filing this transfer-pricing statement is minimal (that is, EUR150), taxpayers failing to file the report are likely to be scrutinized by the French tax authorities.
Country-by-Country Reporting. In accordance with the OECD final report on Transfer Pricing Documentation and Country-byCountry Reporting (CbCR) Action 13 and EU Directive 2011/16/ EU regarding mandatory automatic exchange of information in the field of taxation, certain companies that are members of a multinational group with a consolidated turnover of at least EUR750 million are subject to a CbCR obligation (Article 223 quinquies C of the French Tax Code). The report must be filed within 12 months after the closing date of the financial year. Noncompliant companies may be subject to a penalty of up to EUR100,000.
Controlled foreign companies. Under Section 209 B of the French Tax Code, if French companies subject to corporate income tax in France have a foreign branch or if they hold, directly or indirectly, an interest (shareholding, voting rights or share in the
profits) of at least 50% in any type of structure benefiting from a privileged tax regime in its home country (the shareholding threshold is reduced to 5% in certain situations), the profits of this foreign entity or enterprise are subject to corporate income tax in France. If the foreign profits have been realized by a legal entity, they are taxed as a deemed distribution in the hands of the French company. If the profits have been realized by an enterprise (an establishment or a branch), these profits are taxed as profits of the French company if the tax treaty between France and the relevant foreign state allows the application of Section 209 B of the French Tax Code.
For the purpose of the above rules, a privileged tax regime is a regime under which the effective tax paid is 40% lower than the tax that would be paid in France in similar situations (such a foreign company is known as a controlled foreign company [CFC]). Tax paid by a CFC in its home country may be credited against French corporate income tax.
CFC rules do not apply to profits derived from entities established in an EU Member State unless the French tax authorities establish that the use of the foreign entity is an artificial scheme that is driven solely by French tax avoidance purposes.
Similarly, the CFC rules do not apply if the profits of the foreign entity are derived from an activity effectively performed in the country of establishment. The concerned company must demonstrate that the establishment of the subsidiary in a tax-favorable jurisdiction has mainly a non-tax purpose and effect by proving that the subsidiary mainly carries out an actual industrial or commercial activity.
Debt-to-equity rules. For a discussion on the restrictions imposed on the deductibility of interest payments, see Section C.
Headquarters and logistics centers. The French tax authorities issue rulings that grant special tax treatment to headquarters companies and logistics centers companies. These companies are subject to corporate income tax at the normal rate on a tax base corresponding generally to 6% to 10% of annual operating expenses, depending on the company’s size, functions assumed and risks borne. In addition, certain employee allowances are exempt from income tax.
Reorganizations. On election by the companies involved, mergers, spin-offs, split-offs and dissolutions without liquidation may qualify for a special rollover regime.
Tax credits for research and development. To encourage investments in R&D, the tax credit for R&D expenditure equals 30% of qualifying expenses related to R&D operations up to EUR100 million, and 5% for such expenses above EUR100 million.
A tax credit has been designed to promote cooperation between private corporations and public research bodies and is based on R&D expenses incurred as part of research cooperation agreements concluded between 1 January 2022 and 31 December 2025. The tax credit for cooperative research amounts to 40% (or
F. Treaty withholding tax rates
The following table is for illustrative purposes only.
Kyrgyzstan (c)
(a)
(a)
(a)
(k)
(j)
(c)
St. Martin
St. Pierre and Miquelon
South Africa 5/15
(a) 0/5 0/5
Spain 0/15 (a) 0/10 0/5 Sri Lanka – (j) 0/10 0/10
(a) Dividends paid by French companies to parent companies located in other EU Member States are exempt from withholding tax if the parent company makes a commitment to hold at least 10% of the distributing company for an uninterrupted period of at least two years (the 10% threshold is lowered to 5% if the effective beneficiary cannot credit the French withholding tax in its country of residence).
(b) Withholding tax rates of 5%/15% (dividends), 0%/10% (interest) and 0%/10% (royalties) apply with respect to Quebec.
(c) France has agreed with Turkmenistan to apply the France-USSR tax treaty. France applies the France-USSR tax treaty to Belarus, Kyrgyzstan and Moldova. A tax treaty between France and Moldova was signed on 15 June 2022 but had not entered into force as of 1 January 2023.
(d) The tax treaty between France and China Mainland does not apply to Hong Kong.
(e) As a result of the implementation of EU Directive 2003/49/EC, withholding tax on interest and royalties paid between associated companies of different EU states is abolished if certain conditions are met (see Section B).
(f) France is honoring the France-Yugoslavia treaty with respect to Bosnia and Herzegovina, Montenegro and Serbia.
(g) The French domestic law applies. As a result, the rate is 0% under normal circumstances. The rates listed for interest in the table are the treaty rates.
(h) The general rates under the treaty are reduced in practice according to a “most-favored-nation” clause. The rates indicated are those resulting from the application of the “most-favored-nation” clause.
(i) The 75% rate applies only to payments made into uncooperative countries (see Section E).
(j) The domestic rate applies.
(k) The dash signifies the domestic rate.
(l) A tax treaty signed on 4 February 2022 between France and Denmark entered into force on 1 January 2024. The tax treaty applies to withholding taxes on revenues paid on or after 1 January 2024.
(m) A tax treaty signed on 11 May 2022 between France and Greece entered into force on 1 January 2024. The tax treaty applies to withholding taxes on revenues paid on or after 1 January 2024.