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17 January 2023 France implements measures to address high energy prices
The temporary solidarity contribution (TSC) was established under Article 40 of the French Finance Bill for 2023 and is applicable from 1 January 2023. Entities in scope: the TSC will be due by legal entities and permanent establishments carrying out an economic activity in France or whose profits are taxed in France pursuant to a Double Tax Treaty. Activity in scope: at least 75% of the above entities’ French turnover for their first fiscal year beginning on or after 1 January 2022 must be derived from economic activities in the field of the extraction, mining, refining of petroleum or manufacture of coke oven products, as referred to in Regulation (EC) No 1893/2006 of the European Parliament and of the Council. The contribution base is the fraction of the entity's taxable income for the first fiscal year beginning on or after 1 January 2022 that exceeds 120% of the average taxable income for all fiscal years beginning on or after 1 January 2018 and preceding the tax year. When this average is negative, it is considered to be equal to zero. The income effectively subject to corporate income tax (CIT) is taxed without the possibility to take into account any tax credits and/or reductions. The contribution rate is 33% and no tax reductions and/or tax credits may be offset against such contribution. It also may not be deducted from the income subject to French CIT. The contribution will be controlled, collected and paid in the same manner as the French CIT. If the taxpayer is not subject to CIT, the contribution must be paid no later than the 15th day of the fourth month following the end of the fiscal year (before May 15th if the fiscal year is a calendar year). The cap on market revenue was established under Article 54 of the French Finance Bill for 2023; the Cap on Market Revenue (CMR) is transposed into French Law through the creation of a contribution on the “infra-marginal rent” of electricity producers. The wholesale price of electricity is based on the production cost of the last power plant utilized to meet the electricity demand. This “last plant” is called “marginal” and is usually a gas or coal plant where costs of production are dependent upon the costs of such gas/coal. The other plants, where production costs are lower than the “marginal plants” due notably to the fact that they were not increased by the increase in the gas/coal prices, are called “infra-marginal” (e.g., nuclear plants). Such “infra-marginal” plants benefit however from the increase of the electricity prices even though their productions costs did not increase. Such windfall effect is called “infra-marginal rent.” The contribution is due on the infra-marginal rent of electricity installations that meet the four following cumulative conditions: The electricity is not produced out of certain technologies for example, the combustion of various gases (e.g., coal gases, water gases, lean gases, etc.). The installation is not supplying electricity to a “small” electricity network (< 3.000 GWh of electricity consumed per year and which can be linked to other networks for up to 5% of its annual consumption). Businesses for which the cumulative capacity of their power plants does not exceed 1 MW are exempted from the CMR. The taxable event is the production of electricity by the above-described plant during the following periods: The tax base is the portion of the market income of the operator of the plant that exceeds a fixed threshold set by law, less a 10% deduction. Such thresholds are defined in €/MWh and vary according to the electricity production technology used as well as the installed electrical capacity. In 2022, to mitigate the increase in the price of electricity, France reduced the rate of the Tax on the Final Consumption of Electricity to 0,5 € MW/h. Jean-david Vasseur | jean-david.vasseur@ey-avocats.com Pierre De Touchet | pierre.de.touchet@ey-avocats.com Document ID: 2023-5057 | |
