The new supplementary budget for 2012, proposed on 4 July 2012, has been definitively passed by parliament. Our previous update related to the bill as it then stood. We can now set out our observations on the final version adopted by parliament on 31 July, which is expected to be promulgated in mid-August, after the Constitutional Council has made its decision.
The main measures of the bill are set out below:
I – Corporations
- Loss carry-forward and change of activity. Currently, the right to carry forward tax losses can be lost in the event of a major change in the company’s activity. The new provisions considerably expand the scope of this principle by making it applicable where the means of production are not retained (except where this is due to force majeure) and where there is addition of new activities or partial abandonment of existing activities, provided that such addition or abandonment is significant. Where carrying forward is prohibited under the new provisions, it can nevertheless be authorised in certain cases by prior tax authority approval. These changes apply to financial years ending on or after 4 July 2012.
- Transfer of losses upon restructuring: under French law, losses cannot be transferred to another company unless prior approval is obtained from the tax authorities. Such approval is automatic where certain conditions are met. The new provisions change these conditions so as to prevent losses being transferred to companies which do not maintain their clientele, employees or fixed assets for at least 3 years. These changes apply to financial years ending on or after 4 July 2012.
- Intragroup waivers of debt granted for financial reasons to French or foreign companies become non deductible for financial years ending on or after 4 July 2012.
- Non-deductibility of short-term capital losses on securities acquired for capital contributions whose real value, on the date of issue, was below their accounting value. This provision is intended to put an end to tax optimisation structures in which a parent company assists a loss-making subsidiary through recapitalisation and subsequently sells its interest in the subsidiary, thereby producing a capital loss that will be deductible against corporation tax if the subsidiary is sold within 2 years.
- Dividends and other distributions declared payable after publication of the Law are now subject to a 3% tax charge. This tax is being presented as a surcharge on corporate income tax, to be borne by the company making the distribution. The surtax would not apply if that company is a small or medium-sized enterprise which does not belong to a group. Equally, it would not apply if the recipient is a foreign collective investment fund or another company in the same tax group. The tax also does not apply to distributions made by a real estate investment company (SIIC) to another. Equally, dividends paid in shares are excluded, except where followed by repurchase of the shares as a means of reducing capital. On the other hand, while an exemption was originally envisaged for distributions to a parent company which holds more than 10% of the share capital of the entity making the distribution and is subject to the EU or French parent-subsidiary tax exemption, these provisions have been removed by parliament.
- The withholding tax on French dividends distributed to foreign collective investment funds is abolished, except in relation to distributions made by a SIIC out of profits which are exempt under the SIIC regime.
- The rate of the financial transaction tax is doubled (from 0.1% to 0.2%) as from 1 August 2012 (the date the tax comes into force) and the tax is made applicable to transactions relating to share certificates. Further, the law now stipulates that, where a chain of brokers is involved in executing an order to purchase shares, the liable party for payment of the tax is the investment service provider who receives directly the order from the purchaser. Finally, the scope of the FTT will be extended to include American Depositary Receipts (ADR) as from 1 December 2012.
- The rate of systemic risk tax will double to 0.5% from 2013, and an additional contribution will be due in respect of 2012, so as to achieve the same result in that year.
- Concerning employer contributions, the social security contributions exemption for employee overtime is abolished, except for companies having less than 20 employees, as from 1 September 2012 (the exemption for employee contributions is also abolished as from 1 September and income tax exemption is abolished as from 1 August 2012). The employer contribution on stock-options and bonus shares will be increased to 30% (and the employee contribution to 10%) with effect from 11 July 2012. Also, contributions on employee savings funds are increased from 8% to 20% as from 1 August 2012.
- Tax on oil products stored in France: Oil companies, refiners and traders, whether established in France or not, will be subject to a surcharge on oil products stored in France. The surcharge is 4% of the value of the average volume of oil stored during the last 3 months of 2011. This tax is not deductible for corporation tax purposes.
II – Individuals
- An exceptional wealth tax “contribution” for 2012, calculated according to the progressive scale that applied up to 2011 (i.e. at rates ranging from 0.55% to 1.8%), will apply to taxpayers whose taxable net assets exceed EUR 1.3 million. The wealth tax paid in June 2012 will be credited against the new surcharge, which will be payable by 15 November 2012.
- Gift and inheritance taxes will rise: although the tax rates remain the same, the personal allowance applicable as between parents and children is reduced from 159,325 euros to 100,000 euros. Also, the allowance will only revive every 15 years (instead of every 10).
- Income and capital gains derived by non resident persons from immovable property located in France will be subject to a new 15.5% tax. This is a major change in the taxation of non-residents (applicable in respect of income as from 1 January 2012, and in respect of capital gains from publication of the Law).
- Tax on vacant accommodation is increased.
III – Others
The standard VAT rate of 19.6% remains the same, even though an amending finance law passed before the presidential election had envisaged an increase as of October 2012. The rate of VAT on books and certain shows and performances (which had been increased from 5.5% to 7%) will revert to 5.5% from 1 January 2013.