The Finance Bill for 2014, adopted by the Council of Ministers on 25 September 2013, contains important tax measures affecting businesses. The most significant of them are described below. It should however be stressed that their content may still be changed significantly before they are enacted.
Tax on "Excédent brut d’exploitation" (EBE)
Companies which are subject to corporation tax will also be subject to a tax based on the “EBE” in respect of financial years ending on or after 31 December 2013. The EBE (a French notion close to the EBITDA) is defined as the difference between (1) value added (turnover less purchases) and (2) payroll costs and taxes. In economic terms this represents profit plus depreciation. The rate of the new tax has been fixed at 1% for the first year of its operation. It will affect companies whose turnover is greater than 50 million euros. In relation to tax consolidated groups, the turnover is computed by aggregating the turnovers of each member company. However, the tax bill does not allow compensation of EBEs within a consolidated group. The EBE tax will not be deductible from profits for the purposes of corporation tax. It will be payable when the return relating to the balance of corporation tax is filed (which means by 15 April for companies whose financial year is the calendar year).
Intra-group debt and hybrid instruments
Deductibility of interest paid to a connected company has been made subject to a new limitation with a view to avoiding the situation where it is deductible in France but not taxable abroad.The right to deduct will therefore be subject (in relation to financial years ending on or after 25 September 2013) to a requirement that the interest received by the lender is subject to a tax on profits amounting to at least a quarter of the sum that would be payable under the general law. It is for the borrower to demonstrate this at the request of the tax administration. Where the lender is domiciled or established abroad, the tax on profits payable under the general law is to be understood as the tax that would have been payable in France if the lender had been established here. It should be noted that the Finance Bill does not include any provision affecting the principle that dividends received by a parent company is exempt even in a situation where the distribution gives rise to a deduction in the State where the subsidiary is established.
Transfer pricing regulations will be amended to deal specifically with business restructurings taking the form of a transfer of functions or risks, either to a connected business, or to a business located in a low-tax country (a non-cooperative country or territory, or a country where the company is subject to a privileged tax regime). It will be laid down that if, in the two financial years following such a transfer, the average EBE (this notion is explained in the “tax on EBE” section above) of the transferring company falls by 20% or more in comparison to the 3 financial years preceding the transfer, the company will be required to show that it received financial consideration equivalent to that which would have been agreed between independent companies. In default of this, the profits that ought to have been made will be added back to its taxable profits. The new rule will not apply to the transfer of a single asset, or the grant of a right to use a single asset, provided that there are no connected transfers of functions or risks.
50% tax on high remuneration
All categories of employers will be subject to a 50% tax on the amount by which the remuneration paid to any individual in each of the years 2013 and 2014 exceeds 1 million euros. This will be calculated on the basis of the amounts shown in the accounts during the year, regardless of the dates of the employer's financial year or the date of actual payment of the remuneration. This measure applies to remuneration relating to a business carried on in France which, as such, is capable of being deducted from taxable profits. In addition to wages and salaries, it includes:
- attendance fees,
- where paid by the employer, pensions, supplementary pensions, compensation, allowances and similar advantages provided by reason of retirement,
- the grant value of share options and bonus shares (determined in accordance with the rules applicable to the social security contribution payable by the employer) and the grant value of founder warrants : “BSPCE” (determined in the same way), such items to be added in the year when the decision to make the grant was made,
- advantages provided in respect of employee savings.
The tax will be due on 30 April 2014 and 30 April 2015. It will be deductible for tax purposes and will be subject to a ceiling of 5% of turnover for the year in respect of which it is due (2013 and then 2014).
VAT: measures to combat carousel fraud
VAT relating to works to immovable property carried out by a sub-contractor will be payable by the client. The introduction of the reverse-charge mechanism, which is authorised by the VAT Directive, is intended to combat carousel fraud in the sector. Furthermore, where it is justified in relation to a particular sector because of an imminent sudden risk of fraud, the reverse-charge mechanism may be applied by order of the Budget Minister, such order to be made after notifying the European Commission. This measure is part of a rapid response scheme introduced by a directive of 22 July 2013 to enable Member States to combat carousel fraud more effectively.
Research tax credit
In relation to expenses incurred on or after 1 January 2014, it will no longer be necessary for the costs of obtaining and maintaining patents and plant variety rights to relate to operations carried out in a Member State of the EU or EEE. There will be a similar relaxation of the rules in respect of costs incurred defending patents and depreciation relating to the innovation expenses of SMEs.