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July 13, 2021

French Parliament approves Amending Finance Bill for 2021

Executive summary

On 12 July 2021, the French Parliament approved the Amending Finance Bill for 2021 (the Bill). Except for the constitutionality review by the Conseil constitutionnel (French Constitutional Council), this Bill is final and expected to be published in the coming days.

This Alert summarizes the main two corporate tax provisions in the Bill relating to companies.

Detailed discussion

Temporary easing of conditions related to the carryback mechanism applicable to tax losses

Under Section 220 quinquies of the French Tax Code (FTC), companies subject to corporate income tax (CIT) that have generated tax losses during a given fiscal year (FY) are able to elect for the carryback of those tax losses and use them to offset their taxable profit of the previous FY, within the limit of €1 million and subject to other conditions.1 Such a mechanism results in a credit equal to said carried-back losses multiplied by the current standard CIT rate which can be used to reduce the CIT payables of the following five years, with the balance, if any, being refunded at the end of the fifth year.

In order to improve the financial situation of companies impacted by the COVID-19 pandemic, the Bill exceptionally allows the carryback of tax losses generated during a FY ended between 30 June 2020 and 30 June 2021, to be used, without limitation in the amount, to offset the taxable profit of the three previous FYs (subject to the same other conditions noted above for the existing mechanism, as well as to some specific ones applicable, in particular, in the case of a French tax consolidation and/or if a company has already elected, pursuant to the existing mechanism, for the carryback of its tax losses of the FY). The CIT rate to be used to determine the corresponding credit is the one applicable to FYs starting on or after 1 January 2022, i.e., generally 25%.

The election to benefit from the exceptional carryback mechanism provided by this new measure must be made by the expiration date of the deadline to file the tax return for a FY ended on 30 June 20212 and no later than the settlement (i.e., the final payment) of the CIT liability of the FY following the one for which said election is made.

Adjustment of the French nonresident capital gain taxation rules

As per Section 244 bis B of the FTC, capital gains realized by a non-French resident entity upon the disposal of its shares in a French resident entity are subject to a nonresident capital gains tax in France if the former holds more than 25% of the economic rights in the latter.

In order to comply with European Union (EU) law, the Bill provides that the following non-French resident entities will be entitled to a refund of the portion of the tax levied (under Article 244 bis B of the FTC) exceeding the one that would have been due if those entities had had their headquarters in France:3

  • Entities established in an EU Member State or a Member State of the European Economic Area (EEA), other than a Non-Cooperative State or Territory (NCST), that have concluded a treaty with France that has an administrative assistance provision aimed at combating tax fraud and tax evasion.
  • Entities established in a third State, other than an NCST, that have concluded a treaty with France that has an administrative assistance provision aimed at combating tax fraud and tax evasion, but only if the transferor is not effectively involved in the management or the control of the entity of which the shares are disposed or redeemed.

In addition, the Bill provides that specific collective investment funds (Organismes de placement collectif) established in a Member State of the EU/EEA or in a third State, other than an NCST, that have concluded a treaty with France that has an administrative assistance provision aimed at combating tax fraud and tax evasion, are excluded from the scope of the above-mentioned nonresident capital gain taxation under certain conditions.

The above described adjustments will apply to disposals and redemptions of shares, and distributions, subject to Section 244 bis B of the FTC, realized as from 30 June 2021.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Société d’Avocats, Paris

Ernst & Young LLP (United States), French Tax Desk, New York



  1. Notably, tax losses generated during a given FY can only be offset against the undistributed profits of the prior FY and against profits that have been subject to CIT at the standard CIT rate and that resulted in a CIT cash payment.
  2. 30 September 2021.
  3. In this context, those non-French resident entities will be able to benefit from the 88% French capital gains participation exemption regime and thus be entitled to a partial refund of the tax levied under Article 244 bis B of the FTC, provided that all the conditions are met.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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