France Update: FINANCE LAW FOR 2022

The Finance Law for 2022, published in the Official Journal of 31 December 2021, in a pre-electoral context, does not include exceptional measures and is essentially content to adjust a number of measures, both in terms of personal and professional taxation.

Nevertheless, four tax measures caught our attention:

• The introduction of a temporary regime for the depreciation of commercial funds
• Adjustment of the regime for the sale of digital assets
• The option for individual entrepreneurs to assimilate to a EURL, or an EARL, and consequently, to be subject to corporation tax, and
• In terms of VAT, the compliance of Article 269, 2-a of the CGI with european Union law.

POSSIBILITY TO DEDUCT FOR TAX PURPOSES DEPRECIATION OF ACQUIRED BUSINESS FUNDS

Depreciation of commercial funds acquired between January 1, 2022 and December 31, 2025, may be deducted for tax purposes.

Component of the business, the business is, according to the General Accounting Plan, mainly composed of the customers, the brand, the trade name and the market shares (Article 212-3 PCG). It is presumed to have an unlimited period of use, but this presumption may be rebutted where there is a foreseeable limit on its exploitation.

The measure applies to companies subject to corporation tax as well as to companies subject to income tax under the real regime and whose results are the responsibility of the BICs, provided that they are required to comply with the rules of the PCG. Craftsmen are not affected by this measure, as are the liberal professions.

The terms of acquisition of the goodwill are, a priori, indifferent. The concept of acquisition should be understood in a broad sense, whether it is an acquisition for consideration or by a contribution.

All business assets depreciated in accounting can benefit from this tax deduction. Depreciation spread over 10 yearsof commercial funds acquired by small enterprises (without the need to justify a limited period of operation) are therefore deductible, as well as depreciation by any enterprise, whatever its size, provided that it justifies a foreseeable limit on the operation of the fund. (for example, goodwill backed by a contract or legal authorization of limited duration). The amortization period of the fund must then correspond to the expected duration for its operation.

In addition, in the event that the depreciated goodwill is the subject of a provision for depreciation.

This provision is related to the result, in a staggered manner, over the remaining depreciation period for an amount equal to the difference between:

• The depreciation that would have been applied if the provision had not been recognised
• Depreciation actually recognised at the end of the financial year

Consequently, in practice, the tax deduction from the total production cost of the goodwill can only be ensured by the finding ofderogatory depreciation. The amount of the provision for depreciation and amortization to be recognised would be equal to the tax reinstatement applied under the provision for depreciation at the end of each financial year.

ADJUSTMENT OF THE TAX REGIME FOR TRANSFERS OF DIGITAL ASSETS

Two tax regimes for digital asset disposals will be possible for gains realized from January 1, 2023.

Individuals who carry out transactions on an occasional basis as part of the management of their assets will have the choice between taxing their gains at the “flat tax” of 30% (i.e. 12.8% capital gains tax and 17.2% social contributions), and an option for taxation at the progressive scale. In the event of an option, all capital gains on the sale of digital assets of the tax household will be taken into account in the overall net income (Article 200 of the CGI).

Individuals who professionally carry out an activity of buying and selling digital assets will now be taxed according to the BNC regime, and no longer the BIC. The professional character will no longer result only from the “habitual” nature of this purchase-resale activity, but from the means implemented for this activity. Thus, taxpayers benefiting from preferential transaction fees given their transaction volumes, those who use professional tools or complex trading practices could be concerned.

POSSIBILITY FOR INDIVIDUAL ENTREPRENEURS TO OPT FOR CORPORATION TAX

The Finance Act provides for the tax consequences of the new single status of the individual entrepreneur. As soon as this status enters into force, the individual entrepreneur will be able to opt for assimilation to the EURL (or earl), and thus opt for corporation tax.

The new paragraph of Article 1655 sexies of the CGI has this irrevocable option,the terms of which will be specified by decree. This option will allow individual entrepreneurs carrying out a taxable activity in the category of BIC, BNC or BA, falling automatically or on option under a real tax regime, to opt for their tax assimilation to a EURL or an EARL.

The individual entrepreneur will be taxed according to the corporate tax regime. The provisions relating to corporation tax will be applicable to him, however, he will be exempted from the registration formalities provided for in articles 635, 1-5 ° and 638 A of the CGI in case of formation or transformation of company or capital increase.

The exercise of this option should have the effect of entailing the consequences of a business closure. When the option is exercised, the assets of the private patrimony will be transferred to the professional patrimony according to article 151 sexies of the CGI. This transfer will benefit from the migrant property regime which allows the taxation of capital gains to be deferred until the transfer of the property.

Thus, at the time of the sale,two capital gains will be determined:

• A professional capital gain corresponding to the capital gain acquired from the property between its allocation to professional assets and its transfer
• A private capital gain corresponding to the amount of the capital gain acquired by the property during the period of belonging to the private patrimony of the entrepreneur

In addition, the withdrawal of an asset from the professional patrimony, and its transfer into the personal patrimony generates a capital gain or loss which will be taxable according to the regime of the common law of professional capital gains.

Liability to corporation tax results from Article 1655 sexies, 3 of the CGI. This option is revocable until the following fifth fiscal year. On the other hand, once revoked, it will be impossible to opt again. Also, a waiver is considered a case of business termination.

In practice,this option is of interest to entrepreneurs whose average income tax rate exceeds that of the IS (i.e. 15% up to €38,120 and 25% beyond). The liability to the IS also allows the deduction of wages paid to the entrepreneur and their taxation according to the rules of wages and salaries.

The profits reinvested in the company will no longer be taxed in the hands of the entrepreneur, but those “distributed” to him will be treated as dividends. They will therefore be taxed at both THE IS and income tax. It should be noted in passing that these dividends will be included in the basis of his personal social contributions and contributions for their fraction exceeding 10% of the amount of the net taxable profit (however, this will not concern self-employed workers under the micro-social scheme).

This device will enter into force at the same time as the new Article L. 526-22 of the Commercial Code which sets the unique status of the individual entrepreneur.

COMPLIANCE OF ARTICLE 269, 2-A OF THE CGI WITH EUROPEAN UNION LAW

The French legislator draws the consequences of the case law of the Administrative Court of Appeal of Nantes and adaptsArticle 269, 2-a oftheCGI, concerning the payment of VAT of a deposit, to bring it into conformity with EU law.

In the case of a supply of goods, VAT is chargeable at the time of supply of the supply. This provision is not amended.

However, in accordance with the judgment of the CAA of Nantes of May 28, 2021 (No. 19NT03579), when a deposit is paid upstream of the delivery of the goods, VAT will be payable at the time of collection of the latter and up to its amount. Indeed, that judgment had stated that the provisions of Article 269, 2-a of the CGI were incompatible with the objectives set by Article 65 of the European VAT Directive.

This measure will allow companies paying down payments to deduct VAT on their purchases earlier and avoid having to bear a cash flow burden.

This new provision does not modify the special regime relating to the chargeability of VAT concerning certain supplies of goods listed in Article 209 of the CGI and for which special rules are laid down (supply of electricity, gas, supplies to oneself of new buildings or building works, etc.).

Finally, this provision will apply to instalments received from 1 January 2023.

By Carine Duchemin, France, a Transatlantic Law International Affiliated Firm.  

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

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.