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Tax Connect Flash | A new austerity plan in France


The French government has just announced a new austerity plan which should enable France to meet its deficit reduction commitments. This newest plan comes in addition to the measures already adopted in August and those already presented in the draft finance law. Among the many measures announced, the following should be highlighted:

I – Regarding corporate tax

1. The current corporate tax system in France is effectively progressive. The general rate is 33 1/3%, but that part of the amount of tax payable which exceeds 763,000 euros is marked-up by a 3.3% “complementary contribution”. The latest austerity plan would temporarily introduce yet another mark-up of 5% on the amount of corporate income tax calculated with the general rate, on companies that declare an annual turnover above 250 million euros. This corresponds to an additional 1.67% effective tax rate increase for these companies, and comes in addition to the existing “complementary contribution”. If this measure is adopted, corporate profits would be subject to an effective corporate tax rate of between 33 1/3% and 36.1%.

2. The amending finance law for 2011 which was adopted in August, limits the use of losses in tax years ending on or after 21 September 2011 as follows:

  • a. Regarding losses carried forward from previous years, deduction is now limited to 1 million euros of the year’s taxable profits plus 60% of the fraction of profit above 1 million (prior to the measure, there was no limitation). The fraction of non-utilizable losses can still be carried forward to the following tax years but only subject to these new conditions.
  • b. Regarding losses carried back to preceding years, deduction is limited to the profit of the previous tax year only, and up to a maximum of 1 million euros (previously, there were no limits as to the amount of profits and deduction was allowed from the profits of the previous three tax years).
  • c. The rules of determining the taxable profits of a tax group are not modified. The offsetting of losses and profits of subsidiaries and the parent company continues to operate without limitation when calculating the overall results of the tax year. The new limitations mentioned above are only applied to the taxation of the group as a whole.

3. Presently, long term capital gains on the disposal of participating interests are exempted from corporate tax, but companies who record such gains must increase their tax base by 5% of the net capital gains recorded on the participations (known in French as “quote-part de frais et charges”). For tax years starting from 1 January 2011, this would be increased to 10%. This corresponds to a rise of the general effective tax rate from 1.67 to 3.34%.

II – Regarding VAT

According to the latest austerity plan, a second reduced rate of 7% will likely be created. This would apply to almost all products and services that fall within the scope of the present reduced rate (catering, hospitality industries work on premises for residential use etc.). The current 5.5% reduced rate would however still apply to staple commodities. These include: foodstuffs, products and services necessary for the disabled as well as household energy supplies. Discussions are expected, though, on what exactly should be regarded as staple commodities.

III – Regarding the regime applicable to shares in a real estate investment vehicle

  • Pursuant to the draft finance law for 2012, the 40% tax allowance available to individuals on their taxable dividends income would be disallowed for SIIC (Real Estate Investment Trust) and SPPICAV (property mutual fund) shares.
    Instead of the normal taxation (and the above-mentioned tax allowance), individual taxpayers can currently opt for a reduced 19% rate on dividends. This reduced rate would also be disallowed on income distributed from 1 January 2011 by a SIIC or by a SPPICAV.
  • The transfer of real-estate company shares is subject to a registration fee of 5% on the net value of the shares. The draft finance law for 2012 provides that only liabilities relating to the acquisition of the property assets and rights should reduce the net value of the shares for the purposes of calculating this registration fee.


Stéphane Austry
Stéphane Austry
Féna-Lagueny Emmanuelle
Emmanuelle Féna-Lagueny