Law and regulation of Covid-19 tax relief in France

Value Added Tax

  • Reduction of the VAT rate from 20% to 5.5% for domestic supplies, intra-community acquisitions and imports of masks, protective clothing and personal hygiene products. For imports, this rate applies since 27 April 2020. For domestic and intra-community supplies, this rate applies retroactively since 24 March 2020 for masks and protective clothing and since 1 March 2020 for personal hygiene products.

Corporate Income Tax

  • Possibility to apply for CIT rebates for companies in distressed financial situation due to Covid-19. 
  • Postponement of deadline from 5 November 2020 to 31 December 2020 to file the annual transfer pricing simplified form (2257) for tax years closed on 31 December 2019. 
  • Postponement of payment deadlines and new flexible rules applicable to CIT instalment adjustments
    • As of June 2020, the instalment adjustments rules become more flexible under certain conditions. The 2nd/3rd/4th instalments may be adjusted so that the sum of the instalment at stake and of previous instalments  equals to respectively 50%/75%/100% of the forecasted amount of corporate income tax for the current fiscal year (a margin of error of 30% is allowed, 10% for the 4th instalment).
    • For companies and groups with more than 5,000 employees or with consolidated sales in excess of EUR 1.5 billion in France, the deferral of payment is subject to compliance with the following conditions (i.e. liability commitment):
      • They must commit not to make distributions nor to buy-back their own shares between 27 March 2020 and 31 December 2020. Distributions within the group remain possible when they aim that supporting a French company in meeting its commitments to its creditors.  In addition, payment of dividends by foreign subsidiaries to French companies would not jeopardize the request for deferral requested by the latter. 
      • They must not have their registered office, their place of effective management or a subsidiary without economic substance in a non-cooperative State or territory for tax purposes (these States are Anguilla, Bahamas, Fiji, Guam, British Virgin Islands, American Virgin Islands, Oman, Panama, American Samoa, Samoa, Seychelles, Trinidad and Tobago, Vanuatu). 
    • A company which does not take these commitments or infringes them will be required to pay immediately the corresponding taxes together with late payment penalties (5% penalty + late payment interest at the rate of 0.2% per month starting from the standard liability date).
  • Early repayment of carry back receivables: a company that incurs a loss during a given fiscal year may carry it back to the retained earnings of the previous fiscal year up to a maximum of 1 million euros upon election. This generates a CIT receivable that can only be offset against the CIT for the following five fiscal years or repaid at the end of that period. As an exception to the standard rules, companies will have the possibility of requesting the early and immediate repayment of these receivables when they arise from an election made in respect of a fiscal year ending in 2020 at the latest (receivables for fiscal years ending between 2015 and 2020). This request may be made from the day after the end of the fiscal year and until 4 May 2021. 

Social Security Contributions or Payroll Tax

  • Postponement of deadline for payment of social security contributions and payroll tax: For the contribution and tax due in October, some companies may request a three-month payment deferral (companies operating in sectors whose activity remains prevented or is newly prevented). For the contribution and tax due in November, all companies may request a three-month payment deferral. However, returns must be filed by the due dates. These measures are subject for large enterprises to compliance with the liability commitment (see above).
  • Aid package provided for in the third amended finance law for 2020: 
    • Total and automatic exemption from employer social security contributions:
      • for SMEs operating in the most affected sectors (tourism, hotels, restaurants, sports, culture, air transport and events as well as sectors dependent on those sectors): contributions due with regards to employment periods from 1 February 2020 to 31 May 2020;
      • for very small enterprises affected by an administrative closure decision, excluding voluntary closures: contributions due with regards to employment periods from 1 February 2020 to 30 April 2020. 
      • Employers have until 30 November 2020 to regularize their social security returns in order to benefit from this aid, without the application of any penalty.
      • Due to the lock-down announced at the end of October 2020, the French government announced that this exemption would be extended for all companies with less than 50 employees that are administratively closed and all SMEs with less than 250 employees in the most affected sectors (tourism, events, etc.) that remain open but have lost 50% of their turnover.
    • Payment assistance for companies benefiting from the exemption: Employers eligible for the exceptional exemption measure, mentioned above, also benefit from assistance with the payment of the remaining social security contributions due. The aid takes the form of a tax credit equal to 20% of wages exempt from employers' social security contributions (see measure above). This credit can be applied to all outstanding sums due for the year 2020.
    • Possibility for SMEs and very small enterprises not eligible to the above mentioned exemption and payment assistance to request rebates of employer's contributions of up to 50% and corresponding to employment periods from 1 February 2020 to 31 May 2020, provided that the enterprise subscribes to and complies with a settlement plan and has suffered a loss of activity of at least 50% compared to the same period of the previous year.

Other taxes

  • Possibility to apply for corporate real estate contribution (CFE) and company value-added contribution (CVAE) rebates for companies in distressed financial situation due to Covid-19 (exceptional 2/3 rebate for CFE due for 2020 by SMEs operating in the most affected sectors (tourism, hotels, sports, culture, air transport and events). 
  • Postponement of the deadline for payment of the CFE instalment from 15 June 2020 to 15 December 2020 for companies operating in the most affected sectors (hotels, restaurants, tourism and events...).
  • Taxes settlement plans for very small enterprises and SMEs: 
    • Taxes targeted: direct and indirect taxes with a due date for payment between 1 March 2020 and 31 May 2020 (e.g. balance of CIT / CVAE, VAT due in respect of the months of February to April 2020 which should have been paid from March to May 2020...) 
    • Companies concerned: (i) those that started their activity at the latest on 31 December 2019, (ii) are up to date with their tax reporting obligations at the date of their application, (iii) employ less than 250 employees and have a pre-tax turnover not exceeding 50 million euros or a balance sheet total not exceeding 43 million euros, (iv) certify that they have requested a payment deferral or additional financing facilities to their private creditors for the payment of debts whose due date was between 1 March 2020 and 31 May 2020 (excluding the state-guaranteed loan). 
    • Duration of the settlement plan: limited to 36 months.
    • Deadline to request: no later than 31 December 2020.  

Other relief measures

  • Acceleration of the payment of tax authorities outstanding debts (tax credit for research expenses, VAT credits, etc.) and of invoices awaiting payment by the State, local authorities and government agencies upon request. 
  • State guaranteed loans mechanism (“PGE”):
    • This mechanism concerns loans granted by credit institutions. It was initially available until 31 December 2020 and was extended to 30 June 2021.
    • The state guaranteed loan can represent up to 25% of the company’s 2019 turnover or two years of payroll for innovative companies or companies created since 1 January 2019.
    • No repayment will be required during the first two years (initially this was only during the first year); the company may choose to amortize the loan over a maximum period of five years.
    • For companies and groups with less than 5,000 employees and with a turnover of less than EUR 1,5 billion: the State guarantee covers 90 % of the loan.
    • For companies and groups with a turnover of more than EUR 1,5 billion but less than EUR 5 billion: the State guarantee covers 80 % of the loan.
    • For all other companies, the State guarantee covers 70 % of loan.
    • For companies and groups with more than 5,000 employees or with consolidated sales in excess of EUR 1.5 billion in France, this is subject conditions related to the distribution of dividends or share buybacks and presence in non-cooperative states and territories (see above).
    • On the part of the loan not covered by the State guarantee, the bank must not take any guarantee or security.
  • Ad hoc aid to support the cash flow of vulnerable companies: this mechanism takes the form of repayable advances whose amortization period is limited to 10 years (if aid <<<< EUR 800,000) or subsidized loans whose amortization period is limited to 6 years (if aid > EUR 800,000). This aid, applicable until 31 December 2020, is open to SMEs and medium-sized company (excluding very small enterprises), that have not obtained a State-guaranteed loan, have real prospects of recovery and are not subject to insolvency proceedings as of 31 December 2019. For companies created before 1 January 2019, the aid can be up to 25% of 2019 pre-tax turnover and for companies created on or after 1 January 2019, to the payroll in France estimated over the first two years of activity. Due to the new lock-down, the State may grant to companies with more than 50 employees repayable advances capped at 3 months of turnover.
  • Partial activity mechanism:
    • Since March 2020, upon election of the employer for employees who were not able to work due to Covid circumstances, employees are paid by their employer at least 70% of their gross salary. Until May 2020, the corresponding amount was fully reimbursed by the State to their employer. Since June 2020 and until 31 December 2020, employers are only reimbursed up to 85 % of the indemnity paid to their employees (i.e. 60% of the gross salaries of employees under partial activity), except for companies operating in the most affected sectors (hotels, restaurants, etc.) which will continue to be fully compensated until 31 December 2020.
    • The allowance amount due by the State is capped upwards and downwards. 
    • The eligible companies are those concerned by the obligation to close down an establishment, facing a decline in activity/supply difficulties, and which are not able to put in place the necessary preventive measures to protect the health of employees (teleworking, barrier gestures, etc.).
    • As of 1 January 2021, employees will be paid 60% of their gross salary (instead of 70% currently), except for employees who work in the most affected sectors. Employers will be reimbursed up to 36% of their employees’ gross salaries (compared to 60% currently), except for employers intervening in the most affected sectors. The maximum duration of the initial partial activity period is reduced to 3 months renewable instead of 12 months renewable. In case of renewal, its duration will be limited to 6 months, consecutive or not, assessed over a period of 12 months.
    • Since 1 July 2020, a derogatory mechanism called “long-term partial activity” has been in place. Contrary to the common partial activity mechanism described above, which can be set up at the sole initiative of the employer, the long-term partial activity requires the conclusion of a collective agreement which must be validated by a specific regional administrative office (“Direccte”) that depends on the Ministry of Labour and the Ministry of Economy and Finance.
  • Business solidarity fund:
    • Since March 2020, small companies (i.e. with less than 10 employees and a 2019 turnover of less than EUR 1 million and an annual taxable profit of less than EUR 60,000 for the last financial year closed) could benefit, if certain conditions were met (administrative closure, decrease of turnover of at least 50%...), from a monthly allowance of EUR 1,500. An additional allowance could be granted when it was established that the companies concerned were at risk of bankruptcy. Additional allowances could also be allocated at the discretion of the local authorities. This fund ended in this form at the end of June 2020. As from July 2020, the aid had been extended only to the benefit of companies operating in the most affected sectors (hotel, restaurant, events, sports and cultural sectors or related sectors when they experience a very significant decline in activity), with more flexible conditions. 
    • With the new lock-down announced at the end of October 2020, the aid is going to be extended, until 31 December 2020, notably for the benefit of administratively closed companies and companies operating in sectors with limited activity (appreciated on the basis of a decline in turnover). The loss of turnover could be compensated up to EUR 10,000 (instead of EUR 1,500). The amount of the aid will notably depend on the sector of activity in which the companies operate, whether they have been affected by curfews, whether their turnover was affected during the first lock-down and continues to be affected. For the aid for the months of October and November 2020, the application must be made respectively until November 20 and early December.

Additional comments

  • Suspension of procedural deadlines between 12 March 2020 and 23 August 2020 both for the taxpayers and the tax authorities, and more generally in all areas of law.
  • Suspension of forced collection of public debts (including tax debts) between 12 March 2020 and 23 August 2020.
  • Extension of reporting deadlines for cross-border arrangements (DAC6) – transposition of the EU Council directive of 24 June 2020: 
    • For cross-border arrangements made available for implementation, or ready to be implemented, or whose first stage has been implemented, between 1 July 2020 and 31 December 2020: postponement of the starting point of the 30-day reporting deadline from 1 July 2020 to 1 January 2021.
    • For cross-border arrangements whose 1st stage was implemented between 25 June 2018 and 30 June 2020: postponement from 31 August 2020 to 28 February 2021.
For additional information please refer to the COVID-19 Tax Hub.