The French government has presented its draft Finance Bill for 2022. This flash summarizes its most salient tax measures.
Withholding taxes applicable to non-resident companies
Article 7 of the draft Bill draws the consequences of recent decisions of the French administrative Supreme Court (Conseil d'État) in which certain withholding tax provisions were found to be contrary to the principles of free movement of capital and freedom to provide services, insofar as the withholding tax due by a non-resident legal person or organisation is calculated on a gross basis whereas, in the same situation, a French company would be taxable on a profit established after deduction of expenses incurred for the acquisition and retention of such income.
Non-resident legal entities and organisations established in the EU or EEA which receive French-source income that falls within the scope of Article 182 B of the FTC (in particular sums paid as remuneration for services provided or used in France) would benefit from a lump-sum deduction for expenses of 10%, applied immediately when the withholding tax is levied. Where the amount of expenses they have actually incurred exceeds the lump-sum deduction, these legal entities may request retrospectively the refund of the difference between the withholding tax levied and the withholding tax calculated based on the actual expenses incurred for the acquisition and retention of the income.
Non-resident legal entities or organizations subject to the withholding tax on dividends and similar payments would have the possibility to request retrospectively the restitution of the difference between the withholding tax levied and the withholding tax calculated based on a net basis of the actual expenses incurred for the acquisition and retention of the income thus taxed. This possibility would apply to legal persons or organizations established in the EU or the EEA and for those established in a jurisdiction outside the EU or the EEA, provided, for the latter, that the shareholding held in the distributing company or organization does not allow the beneficiary of the income and sums subject to withholding tax to participate effectively in the management or control of the company or organization. The ex-post refund procedure would be open to entities that are deprived of any possibility to offset the withholding tax against the tax due in their State of residence.
Simplification and compliance with EU law of VAT rules
Article 9 of the draft Bill includes various measures, the main ones being the easing of the option regime for the taxation of banking and financial transactions and the compliance of the VAT liability rule on down payments concerning the supply of goods.
Regarding the latter, the VAT liability would arise as soon as the payment is received, up to the amount received. The new rule would enter into force as of 1 January 2023 and would apply to down payments received after that date.
Deduction of the writing off of goodwill for tax purposes
Article 6 of the draft Bill temporarily authorizes to deduct for tax purposes the writing off of goodwill acquired between 1 January 2022 and 31 December 2023. It defines the conditions under which provisions for depreciation and writing off booked for the same goodwill would be coordinated, to avoid double deductions for tax purposes.
Tax measures affecting business executives
As part of the support plan for self-employed workers revealed mid-September by President Macron, article 5 of the draft Bill proposes to double the amount of the business executives training tax credit for very small companies with less than 10 employees.
Several measures aim to make the capital gains tax exemption mechanisms more flexible in the event of the transfer of an individual business or the retirement of the owner:
- by authorizing the tax-free transfer of a business under a management lease ("location-gérance") to any person other than the manager-tenant, if the latter does not take over the business, provided that certain conditions are met;
- by raising the exemption limits for capital gains on the sale of individual businesses to €500,000 for a total exemption and €1,000,000 for a partial exemption. This increase also concerns the case where the transfer concerns a complete branch of activity or all the rights or shares of a partnership subject to personal income tax held by a partner carrying out his professional activity within the company.
For owners retiring in 2019, 2020 or 2021, the maximum period between retirement and the transfer of the business would be extended from 24 to 36 months. This extended period also applies to the favourable tax regime which applies to capital gains from the sale of shares by managers of small and medium enterprises who sell their company upon retirement. Moreover, this regime, which is currently applicable only to sales and redemptions made from 1 January 2018 to 31 December 2022, would be extended until 31 December 2024.
New tax allocated to the Authority for Social Relations of Employment Platforms (“ARPE”)
Article 32 of the draft Bill creates a tax on the operators of digital platforms that connect people to provide certain transportation services. In short, it would apply to all digital connection services performed with a view to providing services that include passenger transportation by car with driver or delivery of goods by means of a two- or three-wheeled vehicle.
Transportation by taxi or transportation of passengers by means of two- or three-wheeled motor vehicles would be excluded.
The rate of the new tax would be set by ministerial decree, while its base would be determined as the difference between the sums collected by platform operators and the sums refunded to the people connected by platform operators.
