France Update: AMENDING FINANCE LAW 2021: 3 IMPORTANT TAX MEASURES TO ACCOMPANY THE END OF THE HEALTH CRISIS

The amending finance law was published in the Official Journal on 20 July. It is intended to finance the various measures that accompany the end of the health crisis. Three tax measures caught our attention:

– an exceptional mechanism for carrying back deficits
in the field of IS, – the extension of the
mechanism for the deductibility of the write-offs of rent claims granted by landlords, – the bringing the levy in Article 244a B into line with EU law.

EASING FOR DEFICIT CARRYBACK: OPTION UNTIL SEPTEMBER 30, 2021

Companies can carry back their eligible deficit over the previous three financial years without a ceiling.

Article 220d, I of the CGI currently lays down a principle of double limit to the carry-back of deficits:

On the one hand, deficits arising in one financial year may only be
carried back to the previous financial year, on the other hand, the deficit may be carried over only up to a limit of EUR 1 million.
The amending finance law introduces a derogation allowing the deficit recorded for the first deficit closed from 30 June 2020 to 30 June 2021 to be carried over, in full to the declared profit of the previous financial year, and, where applicable, to that of the penultimate financial year, and then to that of the antepenultimate financial year.

If in principle the option for the carry-back of a deficit is exercised within the period for the transmission of the declaration of results for that financial year, it may, by way of derogation, be exercised until the final date for filing the declaration of results for a financial year ending on 30 June 2020, that is to say until 30 September 2021,and at the latest before the liquidation of the IS due in respect of the financial year following that in respect of which the option is exercised.

The option will thus give rise to a claim equal to the proceeds of the deficit carried back by the IS rate applicable for financial years beginning on or after 1 January 2022, i.e. in principle 25%. Note that this “carry-back” claim can be used under the conditions of ordinary law, and must therefore be used for the payment of the IS due during the 5 years following the year in which the loss-making year was closed. It can in no case benefit from the exceptional early repayment provided for by the amending finance law of 30 July 2020.

Where the option to carry back has already been exercised in respect of the same deficit and possibly returned, the amount of the claim thus calculated will be reduced by the amount of the carry-back claim already settled.

It should be noted that this exceptional measure will apply, according to the same procedures, in the context offiscal integration: the overall deficit recorded could thus be attributable to the overall profits declared for the three previous financial years.

We draw your attention to the fact that the practical modalities of the option remain to be specified. Indeed, form n°2039-SD is not currently provided to allow a carry-back of a deficit without a ceiling on the 3 previous years. Similarly, the tax administration should specify whether companies must take out an amending declaration to change the amount of their deficit carried forward and that of their deficit carried back.

EXTENSION OF THE DEDUCTION OF RENT ABANDONMENTS UNTIL DECEMBER 31, 2021

The period during which rent abandonments granted by landlords to tenant companies in difficulty are not taxable is extended until 31 December 2021

Lessors will thus be able to deduct from their taxable result the rent foregoing granted until 31 December 2021,without having to prove an interest in this respect, whether they fall under income tax in the category of industrial and commercial profits (BIC), non-commercial profits (BNC) or corporation tax.

On the other hand, this extension does not apply to lessors subject to income tax in the category of property income.

BRINGING THE ARTICLE 244A B LEVY INTO LINE WITH EU LAW

The French legislator draws the consequences of the case law of the Council of State and adapts Article 244 bis B of the CGI to bring it into line with EU law.

Article 244 bis B of the CGI provides for a levy on capital gains and distributions covered by the regime of capital gains realized by persons domiciled outside France holding a substantial holding (+25%). Remember that this levy corresponds to the standard rate of the IS (i.e. 26.5% for the financial years opened in 2021).

The Council of State (CE 14 Oct. 2020, No. 421524, AVM International Holding) ruled that this levy was contrary to the principles of freedom of establishment and free movement of capital.

In order to bring domestic law into line with EU law, the amending Finance Act provides that:

The levy no longer applies to capital gains realised by foreign UCIs with characteristics
similar to UCIs under French law, Foreign legal persons whose registered office is located in an EU Member State, a State party to the EEA Agreement or a State having concluded a tax convention with France containing an administrative assistance clause, can now legally obtain the refund of the part of the levy that exceeds the IS for which they would have been liable if their registered office had been located in France.
For these foreign legal persons, the theoretical tax to which the company would have been liable in France is calculated by applying to the amount of the share of costs and charges of 12% the standard rate of the IS, and it is therefore the excess of the amount of the levy on this theoretical IS that can now be returned.

This new measure is applicable to capital gains realised on or after 30 June 2021.

By Carine Duchemin, Ginestié Magellan Paley-Vincent, France, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact france@transatlanticlaw.com

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