Executive summary

On 2 February 2026, the French Parliament approved the Finance Bill for 2026 (the Bill).

This Global Tax Alert summarizes some of the key tax reforms included in the Bill that may affect corporations, including:

• The extension of the corporate income tax (CIT) surcharge owed by large companies for one additional fiscal year (FY)
• The extension of the possibility for French corporate borrowers to rely on an arm's-length rate for the tax deduction of their interest due to minority shareholders
• The extension for four additional years of the tax deduction for the amortization of goodwill acquired from third parties
• Revised Pillar Two rules
• A new 20% tax on certain nonprofessional assets held by French and non-French patrimonial holding companies

Detailed discussion

Extension of the CIT surcharge owed by large companies for one additional FY

The Finance Bill for 2025 provided 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. (For background, see EY Global Tax Alert, French Parliament approves Finance Bill for 2025, dated 14 February 2024.)

This surcharge was only supposed to apply to the first FY ending on or after 31 December 2025, yet the Bill provides for its continuation to the subsequent FY, meaning that the surcharge henceforth applies to the two first FYs ending on or after 31 December 2025, i.e., to FYs 2025 and 2026 for companies with a calendar year-end.

All the applicable rules, including the rates of the surcharge, remain the same for this second FY, except for the above-mentioned €1b threshold; i.e., for this second FY, the surcharge is imposed on standalone companies, or tax-consolidated groups, with revenue realized in France equal to at least €1.5b.

Extension of the possibility for French borrowers to rely on an arm's-length rate for the tax deduction of their interest due to minority shareholders

As per Section 39, 1, 3° of the French tax code (FTC), interest paid to shareholders by a French corporate borrower can be deducted for French tax purposes by the latter if the interest rate at stake does not exceed the safe harbor rate published on a regular basis by the French tax authorities.

Yet, as per Section 212, I, a of the FTC, a higher rate can be used instead; i.e., an arm's-length rate (duly supported and documented) can be used if a French borrower subject to CIT and its lender can be considered as "related entities" within the meaning of Section 39, 12 of the FTC, which notably includes majority (non-individual) shareholders, but excludes minority shareholders.

The Bill extends this possibility to rely on an arm's-length rate for the tax deduction of the interest due by a French borrower subject to CIT to its minority (non-individual) shareholders.

This measure applies retroactively to FYs ending on or after 31 December 2025.

Extension of the tax deduction for goodwill amortization for four additional years

The Finance Bill for 2022 prohibited, as a matter of principle, the tax deduction for goodwill amortization, but provided for a derogatory and temporary measure — i.e., for the possibility to deduct, for tax purposes, the amortization made in accordance with French GAAP rules, for goodwill acquired from non-related parties between 1 January 2022 and 31 December 2025. (For background, see EY Global Tax Alert, French Parliament approves Finance Bill for 2022, dated 21 December 2021.)

The Bill extends this derogatory and temporary measure for goodwill acquired until 31 December 2029.

Revised Pillar Two rules

The Finance Bill for 2024 provided for a transposition into French domestic law of the European Union (EU) Pillar Two Directive ensuring a 15% minimum tax on the profits of multinational enterprise (MNE) groups that operate in France and have consolidated revenue of at least €750m generated during at least two of the last four FYs.

The Bill revises the French legislation notably to: (1) consider the Pillar Two guidelines of the Organisation for Economic Co-operation and Development (OECD) published in June 2024 (addressing the treatment of deferred tax liabilities): (2) adjust some terms and definitions to the specificities of certain industries; and (3) adjust some rules concerning the French Qualified Domestic Minimum Top-Up Tax (QDMTT) and, more specifically, address the case of undertaxed investment companies or insurance investment companies.

The Bill also provides for the transposition into French domestic law of the EU DAC 9 Directive extending administrative cooperation and the exchange of information under the Pillar Two rules.

New 20% tax on certain non-professional assets held by French and non-French patrimonial holding companies

For FYs ending on or after 31 December 2026, the Bill adds a 20% tax on the fair market value of certain "lavish" assets (such as yachts and aircrafts) that are not allocated to any operating activity. This new tax is imposed on companies headquartered in France and subject to French CIT, if the following conditions are met:

• An individual holds, directly or indirectly, alone or with their relatives (and potentially with the other shareholders if, all together, they act in concert), at least 50% of the voting rights or the economic rights of the company or has de facto the decision-making power within this company
• More than 50% of the company's operating and financial income derives from passive income
• The fair market value of the company's assets is equal to or greater than €5m

This new tax also applies to companies that are headquartered outside France and subject to a tax equivalent to French CIT or being formed as a corporation if (1) the above-mentioned conditions are met and (2) at least one of the above-mentioned individual shareholders is domiciled in France (in this situation, the latter would be liable for the 20% tax).

Implications

Corporations with interests in France should consider the above changes and consult with their tax advisors as needed.