Executive summary

On 10 October 2024, the French Government presented the draft Finance Bill for 2025 (the draft Bill). The French Parliament will discuss and potentially amend the draft Bill over the coming weeks and vote on the final version by the end of December 2024.

This Global Tax Alert summarizes some of the key tax reforms included in the draft Bill that may affect corporations.

Detailed discussion

New exceptional contribution based on corporate income tax (CIT) owed by large companies

The draft Bill provides for the creation of a temporary CIT surcharge to be imposed on standalone companies, or tax-consolidated groups, with revenue realized in France equal to at least €1b. This surcharge would apply to the two consecutive fiscal years (FYs) ending on or after 31 December 2024, and would be based on the CIT and assessed before offsetting any tax reductions, tax credits or tax receivables.

For the first FY ending on or after 31 December 2024, the rate of the exceptional contribution would be equal to:

• 20.6% for standalone companies or tax-consolidated groups with revenue realized in France equal to or greater than €1b, but less than €3b
• 41.2% for standalone companies or tax-consolidated groups with revenue realized in France equal to or greater than €3b

For the second FY ending on or after 31 December 2024, the applicable rates would be 10.3% and 20.6%, respectively.

To limit the threshold effects, a smoothing mechanism would modulate the rates for taxpayers with revenue that exceeds the above €1b or €3b thresholds by less than €100m.

Taxpayers would be required to remit the exceptional contribution, which would not be tax deductible for CIT purposes, no later than the CIT balance payment date.

New exceptional contribution based on profits generated by large shipping companies

The draft Bill provides for the creation of a temporary exceptional contribution to be imposed on shipping companies, subject to the specific French tonnage tax regime of Article 209-0 B of the French Tax Code, if they have revenue of at least €1b. This exceptional contribution would apply to the two consecutive FYs ending on or after 31 December 2024 and would be based on the operating income corresponding to the operations subject to said French tonnage tax regime.

The rate of the exceptional contribution would be equal to 9% and then decrease to 5.5% respectively for the for the first and the second FY ending on or after 31 December 2024.

Taxpayers would be required to remit the exceptional contribution, which would not be tax deductible for CIT purposes, no later than the CIT balance payment date.

New tax applicable to share capital decreases, subsequent to a share-buyback transaction and realized by large companies

The draft Bill provides for the creation of a new tax applicable to share capital decrease, subsequent to a share-buyback transaction that are realized as from 10 October 2024 by companies headquartered in France with revenue exceeding €1b. If the company is part of a consolidated group, the revenue amount includes revenue reported on the consolidated or combined financial statements.

This new 8% tax would be based on the amount of the share capital decrease, increased by a fraction equal to the amount of the share premiums multiplied by the ratio between the amount of the share capital decrease and the amount of the share capital before the operation.

This new tax would not be deductible for CIT purposes and taxpayers would have to declare and pay the tax upon the filing of their VAT return appendix for the period during which the share capital decrease occurs.

Extended tax-neutral regime applicable to merger transactions

The legal regime applicable to corporate reorganizations was amended by the ordinance No. 2023-393 of 24 May 2023, which in particular introduced into French corporate law partial demergers and a new simplified merger without share exchange (when the absorbed entity and the absorbing entity are held in the same proportions by the same shareholders both before and after the transaction).

The draft Bill acknowledges these changes and, in particular, extends the tax-neutral regime applicable to merger transactions to partial demergers and new cases of simplified merger.

Revised Pillar Two Global Anti-Base Erosion rules transposed into French domestic law

The Finance Bill for 2024 provided for a transposition into French domestic law of the EU Directive 2022/2523 introducing, per the Organisation for Economic Co-operation and Development (OECD) Pillar Two Global Anti-Base Erosion (GloBE) rules, a 15% minimum tax on the profits of multinational (MNE) groups that operate in France and have a consolidated revenue of at least €750m generated during at least two of the last four FYs.

The French legislation would be revised by the draft Bill to consider the recent developments published in the OECD guidelines, which cover in particular the determination methods of the substance-based exclusion, the application rules related to the top-up tax and the transitional safe harbor regime.

Postponing 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 that the trade or business generates.

The gradual repeal of the BCAV was initially decided (by the Finance Bill for 2023) to be completely abolished as of 2024, but this timeline was modified by the Finance Bill for 2024, which provided for a gradual repeal over four years, so the tax would be completely abolished as of 2027.

The draft Bill, in turn, provides for a further postponement of the repeal of the BCAV. Based on the proposed new timeline, the tax would be completely abolished as of 2030, with the following applicable maximum BCAV rates: