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December 19, 2022
French Parliament approves Finance Bill for 2023
On 17 December 2022, the French Parliament approved the Finance Bill for 2023 (the Bill).
Except for the constitutionality review by the Conseil Constitutionnel (French Constitutional Council), the Bill is final.
This Alert summarizes some of the key tax reforms in the Bill that may affect corporations.
Progressive repeal of the Business Contribution on the Added Value (BCAV)
The BCAV is a local tax due by any person carrying out a trade or business in France and it is levied on the added value generated by the latter.
The Bill provides for a progressive repeal of the BCAV that will be implemented in two phases. The BCAV will be reduced by half in 2023, and it will be completely abolished in 2024.
Easing of the holding period requirements to benefit from the specific ruling applicable to certain French spin-off transactions
From a French perspective, a spin-off can be defined as a two-step transaction whereby a company: (i) contributes part of its assets and liabilities to another company, in exchange for shares in this beneficiary company and then (ii) allocates the shares received in exchange for the contribution to its shareholders.
Pursuant to Article 115-2 of the French Tax Code, said allocation of shares can be disregarded for tax purposes, provided that, among other conditions: (i) the allocated shares have been received in exchange for a contribution of assets and liabilities constituting a “complete line of business”; and (ii) at least one “complete line of business” remains at the level of the contributing company further to the contribution.
If one of the two above-mentioned conditions is not met, the allocation could still benefit from that specific tax neutral spin-off regime, provided that an advance tax ruling is granted by the French Tax Authorities (FTA) which could be obtained if, among other conditions, the shareholders receiving the allocated shares make the commitment to keep for at least three years those shares as well as the shares in the contributing company.
Yet, such a three-year holding period commitment must be made only by the shareholders (i) who hold, at the time of the contribution, at least 5% of the voting rights of the contributing company or (ii) who carry out (or have carried out within a six-month period preceding the contribution), directly or indirectly through representatives, executive functions in the contributing company and hold at least 0.1% of the voting rights of the latter.
The Bill provides for a new exemption whereby the three-year holding period commitment does not have to be made by the shareholders of the contributing company, even if they hold more than 5% of the voting rights of the latter, if the following three conditions are met:
This measure will apply to rulings submitted by the taxpayer to the FTA as from 1 January 2023.
Transposition of the temporary solidarity contribution on the excess profits generated by activities within the oil, gas, coal, and refining sectors
The Bill transposes into French tax law the temporary solidarity contribution on the excess profits generated by activities within the oil, gas, coal, and refining sectors, as adopted by the Regulation (EU) 2022/1854 from the Council of the EU dated 6 October 2022 (the Regulation).
Legal entities or branches carrying out an activity in France or whose taxation of their benefit is allocated to France by virtue of a double tax treaty, and whose revenue (generated in France) of their first fiscal year (FY) starting on or after 1 January 2022 results by at least 75% from activities within the oil, gas, coal, and refining sectors (within the meaning of Article 2 (item 17) of the Regulation), are subject to said contribution.
The rate of the contribution is 33% and its basis corresponds to the taxable profit of the first FY starting on or after 1 January 2022 that exceeds by more than 20% the average of the taxable profits of the previous four years (i.e., those of the FYs that started on or after 1 January 2018 and preceding the FY of taxation). Should the average profit result be negative, it would be deemed to be nil. Moreover, the taxable profits to be considered are those effectively subject to corporate income tax (CIT), before the offset of any tax credits.
Such a contribution is not deductible from the taxable result subject to CIT and only concerns the first FY starting on or after 1 January 2022.
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