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:
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