France Update: Main Measures of the Finance Act for 2024

The 2024 finance law, published in the Official Journal on 30 December 2023, is broadly in line with the restoration of public accounts, with a return to below the 3% deficit programmed by 2027, and the continuation of tax cuts that began in 2022, which should lead to a reduction in the compulsory tax rate of more than one point of GDP between 2022 and 2027.

The legislator has mobilised its work on housing taxation and taxation in favour of the energy and environmental transition, major concerns of public policies.

Finally, the fight against tax fraud, which has been at the centre of debate for several years, continues to be strengthened with the creation of new control tools at the disposal of the tax administration.

We present these new tax measures and the most notable adjustments.

FOR INDIVIDUALS:
No significant measures in the area of income tax are to be noted, apart from the revaluation of the progressive scale, which should neutralise the effects of inflation on the level of taxation of households. The limit for each of the five brackets of the 2023 scale is thus increased by 4.8%.

Putting an end to the differences that have arisen between the tax authorities and the administrative judge, the Finance Act excludes the rental of furnished housing from the Dutreil preferential scheme, which exempts business transfers from transfer tax up to 75%.

With regard to the transfer of a business, which the legislator wishes to encourage, the registration tax allowances applicable to the transfer or donation of business assets and similar assets or shares in a company in the event of an internal takeover, i.e. when the operation benefits the employees or family members of the transferor who continue to operate the company for at least 5 years, are increased from €300,000 to €500,000.

In the field of inheritance, the option, considered too “optimising”, to deduct from the taxable estate assets the restitution debt of the deceased following the gift, by the deceased, of the bare ownership of a sum of money of which he had reserved the usufruct (quasi-usufruct scheme) has been put to an end.

REGARDING THE INVESTMENT:
In order to eliminate the differences in treatment, in terms of IFI, depending on whether the taxable real estate asset is held directly by the taxpayer or through a company, the Finance Act provides that social debts not linked to the taxable asset can no longer be taken into account for the valuation of shares taxable to the IFI. As a reminder, in the case of direct ownership, the value of the property may be reduced solely by the debts relating to the taxable assets.

The difficulties in the housing market, which is more than ever in the spotlight in the run-up to the Olympic Games, have prompted the legislator to slash the attractive taxation of furnished tourist rentals somewhat. The micro-BIC regime for these classified furnished tourist rentals is aligned with that of bare rentals under the micro-land regime: the eligibility ceiling for the said regime is lowered from €188,700 to €15,000 in pre-tax revenue; The flat-rate allowance deducted from income has been reduced from 71% to 30%.

The VAT regime for the para-hotel sector, which is deemed to be non-compliant with the VAT Directive, has been redefined: a new criterion of length of stay (30 days at most) characterising the para-hotel activity subject to VAT has been introduced, cumulatively with the criterion relating to the nature of the services (furnished rental and supply of at least 3 of the following 4 services: breakfast, regular cleaning of the premises, supply of household linen and reception of customers).

The VAT regime for the art market has also been adjusted: the French legislator has extended the reduced rate of 5.5% to all intra-Community supplies, imports and acquisitions of works of art, collectors’ items or antiques, except where the margin regime is applied (application of the standard rate in principle). Previously, only the first transaction involving such goods could benefit from a reduced rate (5.5% or 10% depending on the case), while their resale was subject to the standard rate.

In addition, the option for the margin scheme is abolished, as is the flat-rate margin scheme. A taxpayer who is automatically subject to the margin regime may opt for taxation on the sale price, in which case the reduced rate applies.

REGARDING CORPORATE TAXATION:
The Pillar 2 Directive, aimed at combating tax dumping by introducing a global minimum corporate tax rate of 15%, has been transposed in France. This applies to multinational companies with a consolidated turnover of more than €750 million. The latter will have to pay an additional tax in each country of establishment insofar as their effective tax rate is less than 15%.

In terms of transfer pricing, the threshold for triggering the documentary obligation payable by companies has been lowered from €400 million to €150 million (turnover or amount of gross assets of the company).

Finally, a presumption of indirect profit shifting is established where a difference is found between the amount of the transfer price charged by the undertaking and that which should have been achieved under the method described in the documentation.

Finally, the minimum fine to be paid by the defaulting company in terms of transfer pricing documentation is increased from €10,000 to €50,000.

The system of participation products has been adjusted again, following a condemnation of the French legislation by the Court of Justice of the European Union

Thus, with regard to participation income between companies belonging to the same tax group, the benefit of the reduced rate of 1% of the share for costs and expenses (QPFC) is now subject to the fact that the distributing subsidiary has belonged to the integrated group for more than one financial year. Until then, no conditions of detention were imposed, so that the reduced rate applied from the first integration exercise.

The reduced rate of the QPFC has been extended to participation products entitling to the parent-subsidiary regime received from a so-called “integrable” European subsidiary (eligibility for the tax integration regime if it had been resident in France) for the benefit of a French company that has renounced to become a member of a tax group with other French companies even though the latter met the conditions. As a reminder, the waiver of the tax integration regime excluded the benefit of the reduced rate of the QPFC on parent-subsidiary dividends received from European companies owned at least 95%. On the other hand, and paradoxically, parent-subsidiary dividends from French companies that have deliberately not been integrated remain subject to a QPFC of 5%, as the legislator has not yet wished to neutralize this reverse discrimination.

The same exclusion applied for non-parent-subsidiary participating products. From now on, a French company that has renounced the right to set up an integration group may deduct from its net profit, up to 99%, the income received on the basis of a shareholding in a “integrable” European company, provided that the conditions for benefiting from the group regime have been met for more than one financial year.

The tax incentive scheme for start-ups that incur at least 15% of research expenditure, known as Young Innovative Enterprises (JEI), has been adjusted. If the status is extended, under certain conditions, to young companies incurring at least 5% of R&D expenditure, the exemption from income tax to which eligible companies could be subject is abolished. On the other hand, the exemption from local taxes and social security contributions is maintained.

In parallel with the extension of the status of young innovative companies, the financing of innovation benefits from a new incentive mechanism: subscription to the capital of JEIs will entitle, within a certain limit, to a tax reduction at the rate of 30% or 50% (depending on the proportion of R&D expenditure of the company).

Finally, two measures are staggered in time:

Initially planned for two years by the Finance Act for 2023 and promised by the Government to companies, the abolition of the CVAE will finally be spread over four years, for a definitive abolition from 2027, due to budgetary constraints.

Mandatory e-invoicing has been postponed to 1er September 2026 for mid-caps and large companies and as of 1er September 2027 for SMEs.

IN TERMS OF CONTROL:
The system for the automated search for tax offences based on mass data freely accessible on the websites of online platform operators, which until now had been limited to the discovery of hidden activity and non-compliance with tax domiciliation rules, has been extended to deliberate inadequacies in reporting (reduction of tax bases).

Home visits and seizures, which allow the administration to demonstrate fraudulent acts when there are presumed that a taxpayer is evading the assessment or payment of tax, may now also be authorised when there are presumption that a taxpayer is making inaccurate declarations in order to benefit from tax credits provided for the benefit of companies.

It also creates an autonomous offence of making available instruments to facilitate tax evasion, punishing persons who make available to third parties means, services, acts or instruments enabling them to evade their tax obligations.

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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