The French Government has decided on March 13, 2020 to grant deferral for certain tax payments to alleviate the burden of enterprises facing the Covid-19 crisis. For distressed companies, rebates on tax liability may be obtained based on the review of individual situations.
Yet, the Government has stated on April 2, 2020 that large companies which request a deferall in tax and social contribution payments must commit neither to distribute dividends nor to buy-back their own shares between March 27, 2020 and December 31st, 2020.
We summarise herebelow the conditions of such commitment.
Scope
Companies and Groups with more than 5000 employees or with consolidated turnover in excess of 1.5 billion euros in France must make such commitment. Groups are defined as those which file a consolidated tax return for corporate income tax purposes or for local business tax (“CVAE”). Regarding groups, the commitment covers all entities part of the group even if some do not benefit from a cash-flow support.
Companies claiming the benefit of a tax payment deferral shall document their commitment by filing the request on the site impots.gouv.fr and checking the appropriate box.
Transactions at stake
Large companies must commit not to pay to their shareholders either dividends (whether paid in cash or shares) or any other forms of distributions such as interim dividends or exceptional distribution of retained earnings.
If the decision to make a distribution has been made before March 27, 2020, the company remains eligible to the tax payment deferral. If the distributions has been decided on or after March 27, 2020, the company ceases to be eligible to the tax payment deferral, unless such distribution corresponds to a legal requirement.
Distributions within the group remain possible when they aim at providing financial support to a French company in meeting its commitments towards its creditors. In addition, payment of dividends by foreign subsidiaries to French companies would not jeopardise the request for deferall requested by the latter.
Regarding share buy-backs, rules depend on the nature of the transactions at stake: While buy-backs after March 27, 2020 triggering a capital decrease for cash-flow or financial management purposes are not allowed, the following transactions may be entered into:
- Buy-backs for the purpose of allocating shares to employees;
- Buy-backs corresponding to a legal commitment made before March 27, 2020;
- Buy-backs within the framework of liquidity contracts concluded before March 27, 2020;
- Buy-backs realised in the context of a transaction for external growth, to the extent that they are necessary (which the company will have to demonstrate in case of a tax audit) and that the transaction was binding before March 27, 2020.
Penalties
A company which does not make the commitment mentioned above or infringes it will be required to pay immediately the corresponding taxes together with non-payment penalties (5% penalty + 0.2% per late month starting from the standard liability date).
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